Powell's Comments & The Impact on Various Asset Classes

Fed Chairman Jerome Powell is widely being assigned as the cause for the rally in the stock market today following some comments that he made that the market obviously inferred as dovish for rates & as such, bullish for stocks. Many of you already know that I am a firm believer that the technicals (charts) largely dictate where stock prices are headed & that while to many, it may seem that stocks move up & down in response to headlines, earnings reports and the like, but for the most part, news headlines are usually simply the catalyst for a breakout of a bullish or bearish technical pattern or key level which was already in place, waiting for the spark to trigger the expected move.
Again, I am speaking in general terms as there are certainly times where truly unexpected news can cause sudden & sharp moves in the price of a stock or the stock indexes. Emphasis on the word truly unexpected as more often than not, by the time a market-moving news headline hits the press, the market has already baked in most or all of the expected move as little birdies have long since informed those in the know such as corporate insiders & employees, gov’t officials & others that were made privy to the non-public information that isn’t allowed to be acted on, i.e.- insider trading, but almost always is to some degree or another.
Powell’s comments can certainly be considered the spark needed for the breakout above the recently highlighted important resistance levels on SPY & QQQ and whether or not today’s breakout had a fundamental catalyst (Powell’s comments) assigned to it or not, the important things are that a) the breakout occurred and b) the breakout was confirmed with impulsive price action & above-average volume as breakouts that occur on lackluster price action and low volume have a considerably increased rate of failing.
No need to dissect what Powell said in this post as you can find plenty of that in the media today. Essentially, although he never explicitly stated that he would be less likely to raise rates at the next FOMC meeting in December, the market most certainly took his comments to be dovish (i.e.-less likely to raise rates). On several occasions over the past couple of months, I stated with a high degree of conviction that we would soon see the dot-plot of the expected Fed’s rate hikes move down. My reasoning was that 1) stocks were headed much lower than the vast majority of market participants & most important, the “experts” (economists, fund managers, analysts, etc..) believed what even remotely likely 2) once that occurred, which it did, that the expectations for economic growth would be revised downwards due to a drop in consumer confidence (which indeed both fell as well as came in below expectations in yesterday’s release of the Nov monthly report), which in turn would 3) contribute to a downward revision in forward expectations for economic growth & along with that, 4) the expectation of the trajectory of any future rate hikes by the Fed. Check marks across the board so far. Now let’s take a look at the impact that the lower expectations for future rate hikes already have had & will likely continue to have on various assets classes at this time.

Equities

Was it mere coincidence that today’s huge green “Powell-induced” candle coincided with a breakout above 269.60? One could agrue but I strongly do not believe so. While QQQ broke out before SPY today, it waited for SPY to join the bull party by breaking above 269.60 & as soon as it did, both were free to run hard. 60-minute charts below (click to expand):

At this time, my bounce target zone for QQQ runs from about 169.39 up to 172.11 with both the 50 & 200-day EMA‘s currently coming in smack in the middle of that resistance zone. Right now, I have an unusually wide bounce target zone on SPY that runs from 275.13 up to 281 but I will likely hone down my stopping point for this rally soon. Daily charts with price targets below:
Note: Price targets on SPY & QQQ as well several official trade ideas such as GLD, GDX & TLT are covered in the charts below. As such, the remainder of this post is restricted to Silver & Gold members & will require logging on to RSOTC.com to view.

[s2If current_user_can(access_s2member_level1)]

Currencies

Although today’s rally in EUR/USD was already clearly priced in, with this 60-min bullish falling wedge previously highlighted in the trading room yesterday, Powell’s comments today were the catalyst for the breakout as the market took his statements to be Dovish, which is bearish for the $USD.

Gold & GDX

GLD (gold ETF) reversed sharply off the 114.75 support today with the breakout in the EUR/USD as the catalyst behind that move with a nice bullish engulfing candle in GDX due to the breakout in the EUR/USD (Dollar down = gold up = miners up).

U.S. Treasury Bonds

Not the reaction that I would have expected with Powell’s comments taken by all other asset classes as being dovish (which would normally be bullish for treasury bond prices). Probably more of a “risk-on” induced profit-taking in treasuries with stocks rallying hard today so let’s see if TLT will resume the current near-term uptrend going forward.

[/s2If]