Daily Plan 3/23/23
Kicking can down the road
While I did not have a super formal plan from last night, I had expected resistance to come in at 4060 area and this breakout to fumble. See below.
This level was the high of the day before a 100+ dollar sell off later after Powell remarks.
Not only was this almost the high of the day (HOD), as soon as the FED minutes came out, I sent the below update on my Twitter sharing my worry that this was not a dovish, but a hawkish statement. See below.
The events today highlight the fact that techncials alone can be dicey unless supported by the macro, fundamentals and OrderFlow.
Understandably, a lot of participants were super bullish today, many even calling for a FED pause. I was not one of them (thank god! ) and I had expected a 25 BPS rate hike today, which we ultimately got. I am being cognizant of this that a lot of folks got caught wrong footed. On my part, to help with this I am offering below one time discount, valid only today. This is to promote awareness about OrderFlow , a world without technical indicators. If you know some one who will be interested, feel free to share the newsletter.
Note that all my levels are based on Emini S&P500 and can be easily converted to other derivatives like SPX.
Chart A shows that the price has moved lower but the value has not. More on this later.
My take on the FED
As stated earlier, I expected a 25 BPS which was initially construed as bullish before selling off later in the day. This was a very balanced and common sense statement by Chairman Powell. He has said that they may tighten if needed and removed language around ongoing rate hikes.
His reasons? He states that if the bank crisis leads to tighter lending standards, it will have the effect of throttling down the real economy and credit , which means that will take care of FED goals. I do not necessarily agree with this but the intended message was taken well by these markets.
What really spooked every one was two things : a) a majority had been counting on a rate cut this year , which I have vehemently said will not happen this year. Powell today poured cold water on those rate cut bets in no uncertain terms. b) The FED governors have actually raised the terminal rate projections next year by about a quarter of a percentage. This really took the starch out of the market.
My personal take? I agree with Powell that the bank lending will tighten a lot. It already is getting hard to get a loan on favorable terms. I covered this in my weekly plan below. Click the link if you have not already read it yet. Where I disagree is that I think there will now not be any more rate hikes by this bank. FED is done hiking and may begin cutting. I think the conditions could deteriorate quite a bit in next 4-6 weeks which may mean we do not see any more rate hikes and the FED funds rate top out here at 5% in my opinion (IMO).
What else worked today?
A few of recent names shared here did very well:
MSFT rally from 270 to 280
Gold strong rally into 1980 again
Oil rally above $71 from $65.
We also saw about a 1000 dollar sell off in Bitcoin off OrderFlow levels which timed well with the stability in smaller regional banking mess.
My levels for tomorrow
My key level tomorrow will be 4015/4020.
Scenario 1: If this level is visited, it could act as resistance for a move back down towards 3960s.
Scenario 2: An IB close below 3960 could indicate bearish continuation into 3911-3920.
Any updates to this plan may be shared via the chat room below. Install the app and make sure you turn on the notifications.
We last traded 3970 at time of this blog post.
IB is the first hour of trading when NYSE opens at 930 AM EST.
Read my post below from last night to know my thoughts here longer term about new range formation. I do think the bulls have it harder for them to sneak up as long as we remain perched below this whole 4020-4050 area here. In general this is a key area and the bears have so far done a great job here.
The effects of such tightening begins to be felt a year or so into the tightening cycle and we are now only beginning to see it take hold. For a market to bottom, we need to see a fairly panicked FED. In some cases it can be 4-6 months after FED cuts rates for the first time that we begin to see market start a bottoming process. Are we there yet? This I think remains a fairly confident FED.
What else I will be watching
I think higher for longer rates , with the Chairman refusing to cut rates this year at all will make it harder for heavily indebted companies to refinance debt.
When you look at names like CVNA, I do not see how the business model they have can survive given the triple whammy that is about to hit them.
It is about 9 dollars now but I think it may remain under pressure to test sub 5 with LIS near $10.
I will place CCL also in the same boat. I was a bull earlier on this but now near 9, I think they have a lot of headwinds.
This is it from me for now.
Have an amazing session, folks. Share this post if you like my posts and help grow the OrderFlow
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