How far the Fed is willing to go?

US stocks fell yesterday

On Wednesday, the US stock markets went down after the Fed’s decision about the interest rate.

The S&P 500 lost 0.61%, the Nasdaq went down 0.76% and Dow Jones closed at -0.42%.

The downside movement has been driven by Jerome Powell’s hawkish speech.

The Fed’s decision

The last Federal Reserve meeting of the year has been held yesterday, 14 December 2022.

The benchmark policy rate has been raised by half a point, following a series of 0.75% rate hikes.

By doing so the Fed has officially started to slow down its pace of interest rate hikes.

Jerome Powell held a 45-minute press conference after the Fed’s decision to start decreasing the rate hikes and clearly said that the inflation target at 2% is still far away from what we are now and the Fed has still more work to do in order to reach that level.

So, the policymakers are willing to hike more than 5% in total and the investors were not happy with this decision because is higher than the target rate forecasted.

It is important to keep an eye on the labour market, especially the unemployment rate that can go higher than planned and if so we could see a difficult time for the stock market and for the economy in general.

S&P 500 Technical Analysis – Daily Chart

 

The FED confirmed yesterday the increase of interest rates by 0.50%, as expected by investors.

This should have been positive for markets, however, the S&P 500 price reacted negatively to Powell’s hawkish speech.

The price dropped below the 21-day MA (blue moving average) but closed the day above it.

Yesterday’s candle shows a fight between bulls and bears.

If we look at the price action of the last few days, we can affirm that bears are in control right now, as the price has always been rejected at resistance levels and is not able to break and stay above them.

In fact, the price is trading below the 200-day MA (green moving average), which is a key level to separate a bull market from a bear market.

Today the price is dropping and it’s likely going to test the support at 3900, which is also a key level to monitor.

If bears are able to push the price below this level, we will likely see a further drop in the upcoming days.

On the other hand, if bulls are able to defend the 3900 support level, we could see a retest of the main resistances: the 200-day MA at around 4020, the bear market trendline and the horizontal line at 4100.

As highlighted in the chart, the price has been moving sideways for more than 1 month and only a break outside of this range (yellow rectangle in the chart), will define the next direction of the market.

The RSI dropped to 49, indicating a neutral/bearish trend.

Sentiment Indicator – Fear & Greed Index

The market sentiment is at 58 in the “Greed” mode which is higher than the level registered one week ago, but lower than yesterday.

FedWatch Tool – FED rates probabilities

71% of investors are expecting the FED to increase the interest rates by 0.25% at the next meeting.

The remaining 29% are expecting a 0.50% rate increase.

No other options are considered at this time.

The next FED meeting is on 1 February 2023.

Portfolio Update

I made some changes to my portfolio yesterday, after the FED meeting.

I have added new short positions on stocks while keeping my long positions open.

My view is bearish at the moment, based on the current economic situation and based on the latest speech from the FED.

I am expecting more downside in the upcoming days.

If you are already copying my portfolio, please keep the copy open.

If you are thinking of copying me, now could be a good time, if you can invest for the long term (years).

Remember to copy the open trades to optimize the copy.

Remember to set the stop loss on the copy at the minimum level, so you don’t get stopped if there is a correction.

Thank you, everyone. Have a nice day!

Steps to follow to copy my portfolio automatically:

1. Create an eToro account here: https://federicamontella.com/go/etoro/

2. Verify your account and make a deposit of at least 200 USD (you can deposit in any currency, like GBP and EUR)

3. Go to my profile page: https://federicamontella.com/go/etoro-passionforprofit/

4. Start the copy (copy open trades and set the lowest stop loss possible, to allow some movement)

5. Enjoy, it’s all automatic. You will make passive income 24/7

Let me know if you have any questions.

 

Federica Montella

eToro Popular Investor

 

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Author: Federica Montella
eToro Popular Investor, food lover and blogger. Stock trader and Popular Investor at eToro. I am on a mission to find the best restaurants and food to eat.