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What to Do Now?

With the Fed reiterating its hawkish stance yesterday, stocks and bonds came under selling pressure. Stocks continue to decline as they suffer heavy losses trading down to their session lows. Two lagging S&P sectors, S&P Technology (XLK) and the Communication Services (XLC) sector, took the brunt of the selling sectors, as evidenced by daily declines of 2.94% and 2.45%, respectively. Mega-cap Techs such as AAPL, MSFT, GOOGL, AMZN, and META plummeted another 2-4% as gap downs and lower lows have become common in recent weeks.

The bad news is SPX, COMPQ, and NDX suffered bearish gap-downs. The good news, at least from a relative perspective, is INDU, NYA, MID, and SML did not generate gap-downs.

Investors will turn to tomorrow’s jobs report and next Tuesday’s mid-term elections results for further guidance. The two events can easily send stocks tumbling deeper into bear market lows or provide for another relief rally.

The final scheduled FOMC meeting for the year is on 12/12/22. Many investors believe the Fed’s December meeting may signal peak interest rates as Powell and the Fed slow the pace of interest rate hikes. Others remain concerned the Fed will continue with its tightening program.

Over the near term, the challenge for SPX, COMPQ, and NDX is to maintain above their respective Jun, Jul, and Oct 2022 lows (3,637-3,721.5/3,491.58, 10,565/10,089, and 11,037/10,440.64).

The above indexes must quickly surge convincingly above their respective 50-day moving averages and the Oct/Nov 2022 highs (3,813-3,912, 11,171-11,230, and 11,597-11,682) to stabilize the recent selling pressures.

Although INDU, NYA, MID, and SML have held up better than their counterparts, the indexes still must not violate their respective 50-day moving averages, and the May, Jun, and Jul 2022 lows (30,868-31,636/29,653-30,144, 14,361/13,989-13,993, 2,326-2,357.5/2,186-2,187, and 1,139-1,142/1,082-1,097).

The above indexes must surge convincingly above their respective 200-day moving averages and Nov 2022 highs (32,579/33,072, 14,929/15,388, 2,459/2,482, and 1,207.5/1,217) to stabilize and resume their relative outperformance.

In the meantime, it is best to respect the dominant and prevailing trend. Since the primary trends from Nov/Dec 2021 and Jan 2022 remain down trending, any market rallies will be suspect and considered oversold bounces.

Until the indexes reverse above their prevailing downtrends, it is reasonable to expect an increase in volatility and sharp swings. Although the bullish seasonality tendencies may bring about another Christmas to the end of the year rally, investors should remain defensive and adhere to a disciplined risk management strategy.


Source: Courtesy of StockCharts.com

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