Lack of Further Progress. Stocks to Drop.
Daily Plan 4.17.24
Traders-
We saw a unique opportunity on how the modern day economists’ mind work when the FED Chair Powell opened up his comments at a banking forum today. I will not bore you with details but the gist of his comments was that inflation is still too high, restrictive policy could have to stay restrictive longer and that there has not been much progress made this year in fight against inflation at all!
All this was in sharp contrast with the most recent FOMC only a few days ago where the very same FED chair proclaimed “great progress has been made against inflation this year”!
So which version of Powell to believe?
It is not really about Powell really. He is just a player, it is just the nature of this game that makes all this so hard to predict.
This is exactly as I predicted here a week ago after the CPI that the FED will run with the most recent CPI report and paint a darker than reality picture of the inflation here in the US atleast. In fact inflation now is very close to the 2% target except in those 3 categories I said before- insurance, shelter costs and electricity costs. However, this being a very technocratic FED fails in 2 major ways - a) they only look at the surface. They are incapable of a deeper dive to understand this problem a bit more and come up with solutions that actually work. b) They are needy in a sense, to say too much.
Why do they have to advertise their every move and thought is simply beyond me?
Just stay quite and execute on the mission. I suspect the FED chair enjoys the limelight and feels an urge to articulate whatever the prevailing sentiment may be, without validating it entirely. In the end he ends up looking ill prepared to handle the breadth and complexities of this task at hand. This urge makes him say stuff like “we are not even thinking about thinking about rates” or “inflation is transitory” before raising rates from 0% to 5% in 5 months.
FED Chair is actually not alone in this. He has partners in crime. Let us rewind back to December and January. You remember how rosy the economists and PHDs who get paid a lot of money to predict interest rates were? 7 cuts in 2024 one said. No, it is 6 cuts in 2024 another said!
In February these were revised to 3-4 cuts which they rationalized is still better than 0. And now only 6-8 weeks later, the majority sentiment is there will be 0 rate cuts this year. I mean if these highly educated folks, whose only job is to predict what the rates will be, cannot do a good enough job, what chance do mere mortals have?
This is why it is futile to listen to the Media Pundits, it is actually negative to use their feedback to invest and trade.
The only thing that matters is the tape.
And a prime example of this at play today were my levels from last night. Ordinarily based on such hawkish comments by the FED chair, we would have dropped like a rock.
But we did not!
3 times today we came for my level on the lower side and each time we failed to break it, each time rallying about 30-40 dollars.
Stocks braved this about face by the FED chair and remained relatively unscathed. Atleast today.
I think it is pretty remarkable that these levels held on a major pivot by the FED today. If you are interested to receive such level every day and stand out from the crowds who follow headlines blindly, then subscribe now below. Never miss a single update. Inaction to subscribe means we are bearish at the lows and bullish at the highs as we saw all this month. A subscription gets you the best levels in game, every night, before the cash session open.
While we did not sell off today in the Emini and Nasdaq today, this does not mean there will not be implications for what the FED said today.
Let us dive into what these could be.
Look at the 10 year. Courtesy of CNBC.
Back in December, when it was trading sub 4%, and every one was calling for 6-7 rate cuts this year, I predicted we are probably going to end the year higher between 4.5% and 5% rather than closer to 2%.
At time of this post, it closed today at 4.65%.
I personally think the 10 year is now headed back towards 5%. This may not happen overnight but I think between now and the next couple of CPI prints and FOMC, the 10 year is now most likely going to head towards 5% and I see it stay near 4% for rest of the year. If true, and if we have the 10 year near or above 4% at end of this year, it has massive implications for risk on.
However this will not be a straight line down. What makes it a little complicated is a plethora of earnings next which is AMSL, TSM, NFLX, TSLA, GOOG, AAPL. Their impact on the stocks remains to be same. The higher yields begin hitting the stocks once we cross that key threshold of 5% as describe above, not before it in my view.
I want to be upfront about it as this is important. I was bearish on 5330 when almost most folks had been bullish. We are here now at 5070. For me to become bearish here, I need to see a key earnings bomb. Will it a GOOG? I doubt. TSLA will be bad, and every one and their dog knows it by know. So what is it going to be? AAPL? MSFT? Once and if we get a really bad miss by one of these tech giants, combined with the yields pressure, I would say we could get a major ride down. However, that still remains to be seen.
Why I say this? Because based on my research inflation is set to drop sharply. Only caveat for me is the oil. I think 2% CPI is incoming sooner than any one foresees with only unknown at this time for me being the price of oil in one year. Will it be closer to 60 or 100?
Levels for tomorrow
I could literally copy paste the levels from last night here and call it a day. And that is precisely what I am going to do.
5070 on the downside remains a key level for me, and 5130 remains a main level for me for tomorrow. These are emini levels. For SPX, subtract about 40.
Scenario 1: Dips if any into 5070 could be supported for a move higher into 5120-5130. At time of this post, we last traded 5096.
Scenario 2: For further downside action, the bears need to take out 5070 and remain there. This could target 5030 orderflow level few months ago.
Folks, as part of my ongoing series on trading psychology, I ask that you delete most of your social media in order to increase your focus and retention. 99% of folks out there today have the attention span of a squirrel and a puppy combined, which is cute but does not help in markets.
The internet is a boon and a bane at the same time. If you are constantly bombarded by messages from unimportant folks whether that is a snapchat or an instagram, or you are watching a Tik Tok every 2 minutes, it is literally eroding your prefrontal cortex. This has been proven by many studies. Look it up. Pre frontal cortex is part of the brain that helps us focus and watch the tape (or charts) for hours on end. By deleting all social media, I am atleast 50% more focussed and 20% happier. Give it a shot, if it does not work for you, come back and let me know. But I am 100% sure, doing so will make you a better trader. If there is one takeaway from this, cut down your media consumption. Only focus on Tic Toc, not Tik Tok!
~ tic
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