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Powell’s Comments & The Impact on Various Asset Classes

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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.

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2018-11-28T16:29:45+00:00Nov 28, 2018 4:22pm|Categories: Equity Market Analysis, Fixed Income (Bonds), Forex (Currencies), Gold & Commodities|Tags: , , , , , , , , , , , |10 Comments

10 Comments

  1. Robert_Matthews November 28, 2018 4:29 pm at 4:29 pm

    Great post, thanks so much for all your hard work Randy!

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  2. toby November 28, 2018 4:31 pm at 4:31 pm

    Thanks as always Randy,

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  3. Flanny3 November 28, 2018 4:33 pm at 4:33 pm

    thank u. any chance we backtest the initial breakdown at 2870ish levels?

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  4. evyAL1972 November 28, 2018 4:34 pm at 4:34 pm

    Thanks Randy , but where in Powell’s speech did he explicitly imply Dec. rate hike was off the table or am i reading your post wrong ?

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    • evyAL1972 November 28, 2018 4:37 pm at 4:37 pm

      yep . read it wrong and I am in agreeance . I don’t think the market can stand the rates as they stand today .

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    • KCD2Spot November 29, 2018 1:01 am at 1:01 am

      Powell did not say he was going to skip Dec. what he said was that they, the Fed, are close to neutral. Based on his previous statements that they were a long way from neutral. This was seen as more dovish. And the gest of the whole speech was that decisions would be made based on data. My take was he said we have no idea what we are doing but we are going to try to figure it out while we go slower with the rate hikes.

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  5. Tac November 28, 2018 4:39 pm at 4:39 pm

    Would like to know what you think randy, but if you go from the high 292, to the bounce high 280-281, would that be a longer term down trend line, in which would act as resistance and we are at or just below? I’m not a good chart reader by any means but more so asking a question. Could this not be a lower high? Or is the technical damage done, and disregarded?

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  6. burns November 28, 2018 4:40 pm at 4:40 pm

    Randy i am fairly new to the board but if you are calling for a reversal near here and you get it i would be impressed , I think if the president doesnt tweet on China or Europe car tarrifs it goes higher, Closed at top of candle with 126% of 50 day average volume , without bad news ( China , car tarrifs) i think it goes higher and may rally all the way to Santa , Just my opinion

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  7. Kostner November 28, 2018 4:46 pm at 4:46 pm

    Thanks Randy!

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  8. fricardo8 November 28, 2018 6:23 pm at 6:23 pm

    Thanks Randy. Your note over the weekend, warning this could happen was GOLD. Cheers.

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