Last week brought a series of market movements, with an initial decline on Tuesday followed by a rally and subsequent decline on Wednesday. The headlines during this period painted a confusing picture:
Headline on Tuesday: ‘Market down on investor fears of a Fed Rate Hike’
Headline on Wednesday: ‘Market down as the Fed announces No Rate Hike’
Trying to make sense of these headlines in a consistent manner could prove challenging. However, it’s worth noting that the Federal Reserve’s actions were not surprising and were widely expected. In fact, CNN reported:
Washington, DC – CNN: The Federal Reserve said Wednesday it will pause its rate hikes, keeping its benchmark lending rate at a 22-year high, while signaling fewer rate cuts next year.
The move was widely expected, after the central bank signaled in recent weeks that it intended to wait for more data to understand how previous rate hikes are affecting the US economy.
The decline in the market, therefore, does not come as a surprise. In fact, it aligns with our previous expectations. While the rally on Wednesday morning exceeded our predictions, our analysis indicated that as long as the market stayed below 4465SPX, we anticipated further decline to the 4230-4274SPX region. The market reached a high of 4461SPX, reinforcing our outlook.
Our analysis, which was not reliant on the Fed’s actions, has been tracking a potential decline to the 4230-4274SPX region for some time. The Fed’s announcement was merely a catalyst for the expected market move. This further supports our understanding of market behavior.
Week after week, we present empirical evidence that news or reports can trigger market movements, but the substance of that news or report may not accurately predict the direction of the move. Market sentiment plays a crucial role in determining market direction.
It is important to consider these aspects when evaluating market movements. Simply dismissing our analysis without understanding our methodology may hinder your ability to comprehend market behavior. To gain more insight into our analysis, I recommend reading our comprehensive six-part series on Seeking Alpha:
– This Analysis Will Change The Way You Invest Forever – Part 1
– This Analysis Will Change The Way You Invest Forever – Part 2
– This Analysis Will Change The Way You Invest Forever – Part 3
– This Analysis Will Change The Way You Invest Forever – Part 4
– This Analysis Will Change The Way You Invest Forever – Part 5
– This Analysis Will Change The Way You Invest Forever – Part 6
As for the current market situation, while there is potential for the high reached in July to be a long-term top, we currently view the pullback as a corrective structure that sets us up for the next rally towards the 4800SPX region. We have provided our members/clients with objective parameters to determine whether to reinvest the cash raised in recent months or if a long-term top has been established. Further details can be found in our recently posted three-page analysis.
To summarize the near-term outlook, our support levels are the 4230-4274SPX region, followed by the 4165-4185SPX region. Respect for these support levels and completion of the downside structure would suggest a buying opportunity for an expected rally towards 4800SPX. On the other hand, a breakdown below the lower support region opens the door to the possibility of a major top, potentially leading to a break below the October 2022 low in the coming year. It’s important to monitor these levels in the following weeks.
Additionally, our resistance lies in the 4360-4401SPX region. A breakout above this resistance would signal a strong indication that the market has established a low and a rally towards 4800SPX is underway.
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