The following is what we wrote to subscribers yesterday.
The market isn't yet showing a big down follow through push. It is down now as we speak in the overnight.
It was down on Friday but didn't follow through after being down on the open.
This is a slow bleed probably because buy-dippers may not have noticed that the Fed said they are done buying bonds and such. This was Thursday night's readout of the Fed's weekly activity. It was down for once.
Even though last week the Fed only called for a measly 25bp at their next meeting I said I think the bigger news was that they would confirm a real-time halting of their QE.
Powell also said they will now shrink the portfolio. The portfolio buying was most likely the major driver of the market boom since the pandemic and I think the market will slowly realize that this support is gone in the face of other glaring issues.
The stock market's moving very slowly in reaction though but again I think the slow action is because of a slow realization that the Fed stopped buying. Slow and down. Normally I would take that as non-negative action especially against the backdrop of negative news-flow. But I think the market is in transition going to the realization process that the Fed punch bowl buying is done. This market launch caused by that buying is probably behind us. And now the news has drastically changed negative.
Tech Fundamentals
There's major tech conferences this week and so we'll see how companies talk about both important supply AND demand affected by Russia and Ukraine. I am guessing that this has to slow demand and further constrain supply pushing off companies hopes for an improvement of supply constraints. I expect companies to speak about it this week and I expect it to affect the stocks. I'll be following that real-time in chat. That's another reason why I want reduced exposure.
Can We Hold By The Close
If this overnight down 1% as we speak holds by Monday's close, I believe it WOULD be a confirm of another technical breakdown starting. So the market real-time I think is about to tell us its next move.
That said, if I don't see sharp action down holding tomorrow I may want to cover to be less net short in the model portfolio.
In the last week I also noticed higher lows and higher highs for the SPY. That said QQQ I think has been leading the market and does not have higher lows and higher highs. A QQQ break by close of 336 I think is meaningful. Right now as I write it's there. Does it hold? Let's see.
Bias Is For Down Stocks
My bias is down because of general news, the Fed stopped buying and the recent trend. But I don't have confirmation and the market has been holding up. So let's see if this overnight holds. If so I'll have more conviction of the next stage of the market move. We're positioned net short from last week so let's see.
Friday's jobs numbers were very strong but the wage number slowed to 0%. I've heard that the wage number can slow at this period in the year due to some issues with seasonal adjustments to the numbers.
Obviously the Fed has no change to their tightening plans and Powell called the jobs market 'extremely tight' which is a new phrase for him in this trek from dove to hawk. He likely knew these numbers when he spoke last week.
The WSJ also confirmed that the Fed has no change in plans after Friday's report. Again, I believe Powell would have known the numbers when he spoke to Congress last week.
Conclusion
Today is important. Let's see how we close. If we hold lower I would expect near term follow through as buy dippers and algos have to start thinking about a market change.
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