I am reposting this because I got notification that some members did not receive this email on Monday night. In the future, I will post these Memos in this section as a backup.
Some members are asking me what I think the Fed will do this Wednesday. My first response is to focus more on staying defensive in this market. The major averages all experienced distribution days on Monday and the weakness is starting to get to the Mega Cap leaders. Tesla lost its 50-day moving average today, Nvidia broke below its 21-day and needs time to setup again, and Apple reversed on heavy volume. It doesn’t mean to get end-of the-world bearish, but definitely remain defensive.
The main positive is that the S&P 500 and Nasdaq Composite are still above their respective 50-day moving averages. Again, the sector rotation is masking the carnage beneath the surface in growth stocks, as sectors such as Utilities (XLU) and Healthcare (XLV) held up well today. However, if you trade growth stocks, be patient and wait for better opportunities. Discipline is a big part of this game and I’m trusting that members are sticking to their loss cutting policy, raising some cash, and using lighter positions if you decide to trade.
Regarding the Fed, the best-case scenario is if Fed Chair Powell says he will speed up the taper of bond purchases but be patient with rate hikes. If this happens, we might see a relief rally but keep in mind two things: 1) There are no stocks setting up and 2) If you miss a little bounce, don’t have FOMO. As they say, I’d rather be out of the market wishing I was in, than in the market wishing I was out.
Another thing to think about is that maybe Powell wants to talk down the market so that he never has to raise rates. I know this sounds a little conspiracy theory-ish, but it’s not a crazy thought because of all the interest on the debt. For example, in October 2018, he said he would raise rates 3 to 4 times over the next year. The market dropped 10% over the next two months. Then, in December 2018, the market was begging for some relief, but he doubled down on his statement. When he didn’t budge, the market proceeded to drop another quick 10% until he finally retracted his statement in early January 2019. I’m not saying this will happen again, I just doubt he will turn dovish after his hawkish comments just two weeks ago.
Again, this is all just speculation. My opinion doesn’t matter because the Fed is going to do whatever they want to do. The main point of this email is to stay defensive. Good luck!