28082022 post powell speech and market review
Did you see The Powell shocker coming ? PAIN to households and business, and the market ticker just fell like a brick on Friday, market consensus regard fed chair Powell speech as sort of a non-event ( where he would emphasize the data dependency in future fed meeting ) was shaken the moment pain was uttered from his mouth, further extracted speech as below,
While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.
The following meme picture capture the market mood explicitly,
<post Jackson Hole Powell speech>
This Post Jackson Hole Powell speech analysis will be detailed in the following part
1) Inflation
Fed speech mention their entire focus will be about bringing down inflation. But leading indicator of inflation, Housing , Used vehicle , commodity has cooled down significantly. Remember inflation is just the month over month percentage increased in the price, the price doesn’t have go below 2021 pre-pandemic level for inflation, it just have to go below previous month, and then lower again in the subsequent month, and voila inflation monster that financial market and central banker is so afraid of would be poof.
Go find out the chart & inspect them , but if you are lazy, reference are shown below,
1) https://www.cnbc.com/2022/08/26/whartons-jeremy-siegel-on-fed-rate-hike-ahead-of-jackson-hole.html
2) Used car price chart and table as follows,
<used car whole sale price chart>
<Manheim used vehicle value index>
Fed chair Powell might talk tough now to further push back against the loosening of financial conditions. But as CPI report lower figure in the months ahead, I believe market will start to price in another pivot again.
2) Technical (damage ) analysis
Regardless of whether you agree or disagree with federal reserve assessment of inflation monster, the technical damage is visibly ugly, one big solid down bar, in which selling persist from morning till after noon close ( meaning professional is also panic selling ).
Therefore we have to sit on the sideline and watch how the next 1-2 weeks ( maybe even 4-5 weeks ) unfold. And watch how the market interact with 50 days MA.
<SPX scenario >
I have listed the 3 possible future path in the price chart,
Scenario 1: bounce around 50 days MA ( probability : low )
Scenario 2 : fall lower to create a inverse Head & shoulders pattern ( probability : decently high )
Scenario 3 : retest June bottom to form a double bottom ( Probability : zero to almost impossible )
Scenario 4 : fall slightly below June low of 3636 to create false break before rallying higher ( Probability : not zero, but very low , but certainly higher than scenario 3 )
Well what about scenario 5, breaking below June low of 3636 falling much lower ? totally impossible I think.
I am inclined to think that scenario 2 would be the base case. But will see price action in the next few days to assess further, because nimble and fluidity in thinking is the preferred mode of thinking.
Is there any historical precedent to this kind of price action, yes there are 1962 bear market ( both 1962 and 2022 are midterm election year )
< S&P 500 on 23rd October 1962>
Look at how scary the action is at the point of 23rd October 19622, without the benefit of hindsight, everybody( retail and media ) is panic selling thinking another leg lower is coming.
< S&P 500 1961 - 1963 >
So what happen shortly after 23rd October, best market reversal and rallying higher into 1963, eventually exceeding 1961 December high by 1963 year end.
1962 bear market is just 1 reference point, current market may or may not evolve the same, we trade and react to the chart in front of us. Trade safe and invest happily ( and carefully ).
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