Before I get too far, I wanted to let you know that I’ll be presenting at the upcoming Synergy Traders “Friendsgiving” 2022 conference. I’m grateful that they asked me to come share some trading ideas along with 40 other traders who will be presenting over 4 days. It’s going to be a great time to learn new trading tactics and get ready for 2023! I’d love to see you there!
The Fed is getting really good at breaking things lately. Only time will tell if their moves are right in the end, but they have real implications for people now. The Fed has broken the junk and corporate bond market, fueled a near collapse of the British pension system, and now their policies are reining down on the crypto market, assisting in the collapse of the 4th-largest exchange, FXT.
With rumors of insolvency swirling, FXT announced they’ve entered an agreement to sell a large part of its operating business to rival exchange, Binance, for an undisclosed sum. There are two sides to this crypto coin (see what I did there?) and FTX is certainly to blame for its poor management decisions and conflicts of interest with its trading firm and sister company, Alameda.
However, part of this can be tied to a liquidity crunch in the market and poor crypto market policies. The rest of the crypto markets sold off on the news as the loss of a top global exchange brings further challenges to the industry.
Back to equities and the Consumer Price Index report. The CPI does seem like it has peaked, but it’s stubbornly high and only coming down by small percentage points.
We will see how the market responds to the latest CPI report, but it should be helped by companies like Meta Holdings announcing layoffs of roughly 11,000 employees.
The Fed is looking to break things from housing to the job market and so far they seem to be accomplishing their goals.
Here are the relative performance charts of the market sectors. The Energy sector has had a rough week, but the long-term trend remains intact. Is this a buy-the-dip in Energy situation? What do you think?
The elections and the inflation reports have been causing uncertainty in the markets. A red wave didn’t happen as some predicted, but it doesn’t matter too much as long as Congress is split. See, the market has a strong track record of making gains after midterm elections as long as a president has a split congress. As results still pour in, it’s likely that the split will happen and cause the gridlock the market desires.
Split control of Congress would mean fewer policy changes and less risk to certain sectors. This gridlock injects predictable gridlock and therefore more certainly for the next two years.
I think once we get through the next couple of days and into mid-November, we will resume the uptrend through the middle of December. I’m not saying the bottom is in, but I think we have overbought conditions right now and need to come back lower before the next leg up.
Here’s a chart of the SPY. It was disappointing to see a retreat from the 50-day moving average yesterday. Look at $369 as a key level of support. A break below there could lead me to go a little more bearish over the next month, but if we can hold that line and come back above the 50-day, I’ll be more bullish for the next month, looking for strong seasonality plays.
I’m going to let the CPI data shake out and give it another day or two for the elections to work through the market, but then will come back with more trade ideas.
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