Hey There Income Hunter,

Last week may have provided a brief relief to the equity meltdown but I don’t see this as anything more than another bear market rally.

Let’s put all the ingredients of this financial market toxic cocktail together and see what we have:

• Fed is hiking into a $15T crypto meltdown
• Bank stocks are down 40%
• Geopolitical risks continue to mount
• Consumer confidence at all-time lows, and
• The financial markets drawdown has caused $30T of wealth destruction …

This cocktail is more lethal than a dive bar Long Island iced tea.

No doubt internal discussion of the Fed pulling back on tightening has already started.

While the central bank continues to make decisions based on backward looking inflation and economic data, investors need to wake up and smell the coffee …

The economy began rolling over years ago and will continue to trend lower until the Fed reverses tightening …

Today we’ll look at where a short-term rally can take us and why you should be ready to short it once again.

The Fed will End the Tightening Soon

There is no way market expectations for a Fed funds rate of 3%-plus and $1 trillion of quantitative tightening will be realized.

I think,at most, we will see the Fed funds rate rise to 1.5% from the current target rate of .75% and see maybe $250 billion by the end of next year.

Meanwhile, there are still 7.5 .25% hikes still priced in.

So, if I am right about only getting another .75%, then the bond and stock markets could experience a relief rally that is good for a short-term trade that will be ideal for a reset of bear strategies. 

Banks Primed to Benefit From Yield Curve Steepening

Banks rely on the slope of the yield curve for profit margins on what they pay for the cost of capital and the rates they lend it at. 

So, when the 2yr/10yr US Treasury bond yield curve inverted, banks went into a tailspin and the chart below shows how the curve and JPMorgan Chase (JPM) diverged once the curve steepened. 

Now, as the 2yr/10yr curve continues to steepen, I think JPMorgan Chase is well positioned for a decent bounce here. 

The curve steepening will give JPM a boost, as will a boost in the overall market in the days and weeks ahead. 

Notice the chart of JPM below. On its own, JPM is poised for a bounce based on a bullish RSI reversal pattern as, RSI made a higher low when JPM made a lower low last Thursday.

Bring It Home

I continue to build cash and add to gold miners, uranium miners and quality industrial companies, while waiting for the Fed to be forced into reversing policy tightening. 

From what I focus on – including forward-looking economic numbers and the political scene with the Democrat party in serious trouble – it looks like the pressure on the Fed to reverse course may soon begin rising rapidly. 

The way the market closed on Friday and with option expiry this Friday, either look for a quick play from the long side with a tight stop or cover some shorts and look to reset on a move to 4,200 on SPX …

Need help with that? Join me in Power Income Trader.

Live and Trade With passion My Friend,

Griff