2/1 Daily Market Note: FOMC Starts a Change of Pace
Will this change of pace keep the good times rolling?
Hey Folks -
I believe Yesterday’s Fed FOMC inspired a new equilibrium (trading range + change of pace) for both the S&P 500 and Nasdaq-100.
Here’s what I’m thinking.
My read of the market landscape post-FOMC is as follows:
Small Caps will have a harder time until more guidance on Rate Cuts
FAAMG/Semiconductors will still be preferred (on a relative basis)
Large Cap companies with low leverage /high liquidity will be preferred
Debt-laden companies will see less short-term investor interest
Equal-weight ETFs RSP and QQQE are likely to underperform market-cap weighted ETFs SPY and QQQ.
From a technical structure standpoint, my observation is the following:
There will be more reversals of advances intraday (some will be partial re-tracements, others will reverse the entire day’s advance)
The possibility of initial Green Days becoming Red Days (or Green days shrinking to Small Green days) will now be statistically more prevalent. This type of fade market profile hasn’t been seen since Fall 2023, and investors may not be used to this type of give-back. Traders are well aware of this type of daily profile.
Intraday Selloffs which used to last 45-60 minutes could last longer.
The number of Green Candles that happen consecutively could be smaller than in the past before a re-tracement.
Selloffs become “stickier” than before. Red/Black candles are larger and more enduring. In the past, selloffs never stuck, and bounces always overcame them. We could be heading into a more neutral environment.
Ultimately, Institutional Buyers will try to lift markets as 2024 (broadly speaking) is an election year, and there is a implied desire to keep financial conditions stable during important political events. However, the path towards higher prices will be choppier, less stable, and less one-directional.
Adjusting to this new landscape, my commentary will reflect this new type of environment.
In our pre-markets recently, we are now giving ideas on intraday ranges for the U.S. indices ES (S&P 500 Proxy) and NQ (Nasdaq-100 Proxy) so that our members have a new way to think about the landscape.
Many of us are long-term investors (and I am too), but intraday plans can help us understand the big picture piece by piece as we take it one day at a time.
In my pre-market daily plan, I was looking for upside up to 4995 on ES and 17350 on NQ as my belief was that too much of the pre-market strength was concentrated on FAAMG and Semiconductors. This narrow leadership profile means I had to be more conservative in assigning any intraday bounce targets, despite yesterday’s vicious selloff.
We did see strong pre-market action in the morning, which ultimately converted into a range-bound structure for the day (as of this post). Hopefully for Bulls, we can truncate the lows and bounce from here.
At time of this post, I am inclined to think that if the current lows hold, we could recover from here. If today’s lows are violated, yesterday’s selloff is not yet over.
Macro-wise, I think Investors are set up in a very tricky valuation landscape. We can see this as equal-weighted ETFs RSP and QQQE are languishing. This means stock-picking outside the realm of FAAMG and Semiconductors is very difficult, and these two areas drive all the returns for the entire market. This concentrated risk does make it very hard for me to buy stocks long-term at these levels.
Traders who are interested in capturing a piece of the move in certain days’ action may be able to better weather the storm when it comes.
I participate in both timeframes, and will provide as much strategy on both areas when appropriate.
Let’s hope Big Tech earnings are strong for the rest of the week as that will benefit both investors & traders.
Thank you for your support, have a great start to the month. I hope you join us inside our Community. More to come.
-Larry