We finally got our first semblance of a bounce Friday. I do not at all think the lows are in or we will see a V bottom back to highs. We are currently in a bear market, we don't need the pundits definition to take shape, we see the action in growth stocks. Tesla is down 32% this month, PLTR down 34%, APP down 32%, CEG down 34%, NET down 31%, the list goes on and on from the previous market leaders. In order to see a bull market again, we need to see new leaders form and disconnect from the indices selling.
I think a market bounce over the next couple weeks will setup for a bigger sell which I will go over in the section below.
We have a huge Fed meeting Wednesday. Markets are pricing in virtually a 99% chance that rates will not be changed. After a 10% correction does Powell change his stance? Do the lower CPI and PPI numbers create a more dovish Fed? His press conference this week, considering a fast 10% market correction, is much more important than the rate decision. Rates aren't going to change, so the press conference and Powell's wording are 10x more important this meeting.
My prediction of events to come is as follows --- no change in rates Wednesday, Powell continues to say he is "data dependent" but hint at rate cuts next meeting. This would lead to a short term market bounce above the 200sma. The SPY has room to $581-589 on a bounce (closed $562 Friday - will go over in charts below). I think this bounce over the 200sma tricks short term investors into believing the worst is over, retail gets bullish again, and this leads to an even bigger selloff in the next month.
On April 10th we will have the inflation data from March announced. I think we see a big miss on inflation numbers then which allows the Fed to begin cutting rates and stimulating the economy. The Fed's next rate decision meeting is not until May 7th -- 8 weeks from now. With the massive cut in Government spending leading to this panic selloff, in my view we need some sort of major bullish catalyst to turn it around. Rate cuts could do it.
On a short term basis -- I will continue to do very little. I have been taking very short term day trades and trying to scalp a winner per day. I have cut the size in my risk about 75% and am not putting myself in positions to neither win big nor lose big in this tough market. If you are purely swing trading, cash right now is your best bet. The power we have in timing the market based on our day by day assessment of its health, allows us to sit out and not take loss after loss in the most difficult market cycles. There will be better times ahead we just have to get through this corrective phase of the market.
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