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Not as Bad as Feared?

Second quarter earnings reports continue to come in, and they have not been that bad, at least not as bad as feared.


The Fed's rate hike of 75 basis points today matches the consensus call. The targeted short-term rates now move up to 2.25%. Chairman Powell spoke after the FOMC meeting and suggested the central bank may begin to slow the pace of its rate hikes. Again, not as bad as expected.


Stocks rallied sharply into the close. The S&P 500 Index gained 2.62%. The Dow Jones Industrial Average ended up 1.3%., and the technology-laden Nasdaq Composite jumped 4.06%.


S&P Technology sector led the market rally with sharp gains of 4.3%, followed closely by S&P Communication Services (4.22%) and Consumer Discretionary (3.79%). Interest rates (yields) again fell after the Fed announcement. TNX tests its crucial neckline support at 2.70-2.75%.


Key economic numbers released this week, such as GDP, jobless claims, and the personal consumption expenditures index (PCE), will help decide whether it is not as bad as feared.


If the economic and earnings numbers hold up or come in better than feared, then the 6/17/22 summer rally can extend into late summer and to early fall.


Did the stock market already price in the bad news, including a recession?


The next FOMC meeting is not until 9/20-9/21/22.


Another mid-term election year is also around the corner.


Is this the start of a second-half recovery as earnings improve, interest rates decline, and inflation subsides?


From a technical perspective, it is encouraging to find the day before the July FOMC meeting, the SPX index fell right into the crucial 50-day ma (currently at 3,919.5) yesterday and rebounded strongly today.


Consolidations are healthy as the backing-and-filling actions help to build the necessary technical base to sustain higher prices. The recent selling may also be associated with weak holders selling into strong hands as long-term buyers return.


It is also important to point out that SPX has surpassed critical initial resistance at 4,017-4,021, coinciding with the 6/10/22 gap-down, 38.2% retracement from Mar-Jun 2022 decline, and the Mar 2022 downtrend.


A convincing breakout above 4,017-4,021 helps to reaffirm the recovery toward secondary resistance at 4,137-4,177.5 (6/2/22 reaction high and the 50% retracement).


Intermediate-term resistance remains at 4,255-4,348.5 (7/20/22 short-term breakout target, 61.8% retracement, and the 200-day ma) or just below the top of the primary Jan 2022 downtrend channel between 3,621 and 4,396.


Will the late-summer rally peak around 4,250-4,350?


Source: Chart courtesy of StockCharts.com

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