Yo Pit Crazies,

Monday was another day that the market decided it will have to go on without artificially low rates provided by the Federal Reserve.

The EU is also in the same boat – and the implications are real.

Stocks have to grow without stimmy checks, reckless government spending and now Fed intervention. (Those are all things that White House Press Secretary Karine Jean-Pierre this week spun as a “historic economic boom.”)

Well, the last time the equity markets went on the Skinny Money diet was December 2018.

That did not go well.

The Big Indexes Have Erased 2021 and Are Working on 2020

The S&P 500 had a crazy year in 2021, gaining almost 25%.

Those gains are gone and the Federal Reserve has no choice in the short term but to keep raising rates into the 1-2-3 punch of US foreign policy.  From tariffs, oil , supply chains and sanctions, domestic policy is getting upended by foreign policy.

The issue for stock traders is can equites survive the withdrawal of capital the Fed provides by changing to QT?

In 2018 we never found out.

The Fed blinked and stopped its aggressive policy to raise rates and run QT at the same time.

So they are going to try it again.

25% drop in two months going into the last big Fed tightening.

I believe this will bring about a sustained bout of market volatility. However the upside will be out of play since the Fed is not going back to the well.

In order to maintain some credibility they will have to keep rates going up in the short term.

That will keep stocks weak but with successively lower volatility. I dont think there will be the grand capitulation folks are looking for to buy the bottom. Just a grind until valuations get reasonable.

Hint: the last drawdown in 2018 was 25% from the top.

Tune into the MARKET SURVIVAL SUMMIT to see how to trade it.

The Rundown

Option Shopper

Licia sold the Salesforce.com, inc (Ticker: CRM) for a 113% gain on a put spread close.

To Your Trading Success,

AG