5/1 Daily Plan: May FOMC likely marks the beginning of more challenging trading conditions
Complacency Over.
Youtube Video Resource to help readers in this market environment: How to trade Bear Markets and corrective cycles
Hey Folks -
After a smooth/complacent 3 months to start the year, April reminded us that markets will experience setbacks and corrective cycles along the way. One of the the best things that Investors can do right now is learn how to trade bear markets and market environments marked by reversals.
I’m not saying that we’re entering a bear market, but I do believe the sessions that we’ve seen throughout April and today’s FOMC is very similar to the type of price action last seen from 2022’s bear market. If this price action is to continue, it would be a good idea to learn how to navigate it.
My read of today’s FOMC is that the Fed is increasingly confused about the state of inflation and that they will continue to be very reactive to all economic data that is related to inflation. We know this because Powell said that “we are going to make decisions meeting by meeting”.
The type of price action that we’re seeing in certain blue chip names like Starbucks (down -17%) is quite concerning. McDonalds yesterday reported that low income consumers are starting to crack, but for Starbucks to report a decline in same-store-sales is a sign that even middle-income consumers are pulling back on consumption.
The effects of tight monetary policy are starting to show up in consumer stocks (16% of the S&P 500), and that means it’s only a matter of time until consumer spending softness shows up in financial stocks (13% of the S&P 500).
Meanwhile, the AI Trade is beginning to get more contested with SOXX ETF names NVDA, AMD, AVGO, AMAT, and LRCX facing rather intense pressure after AMD’s earnings.
On AMD - I happen to think their earnings were strong, and while there may be more near-term weakness, I favor a trip back to 155-170 in the coming 3 months or so.
Periods of market weakness will make long ideas more challenging. But they will work if given time.
Another recent example that took a few weeks to work is my Johnson & Johnson (JNJ) 144 level shared with members. What happened at JNJ 144/share? A big rally back to 151 on this conservative healthcare name.
JNJ has been mired in a terrible downturn throughout 2024.
But that doesn’t mean we can’t find opportunity in this good company!
For tomorrow, here’s what I’m pre-planning in terms of sequencing for NQ’s daily levels (Nasdaq-100).