Hey There Income Hunter,

 

I knew Federal Reserve leaders would not be happy about the stock market rally. 

 

Rallies ease the impact of their rate hikes and support higher inflation for longer.

 

So like clockwork Powell sent out James Bullard and John Williams to sound the hawkish tone.

 

A few Fed soundbites:

 

FED’S WILLIAMS: 

• INFLATION RISKS REMAIN ELEVATED.
• THE FED WILL NEED TO RAISE INTEREST RATES EVEN FURTHER.

 

FED’S BULLARD: 

• THE SITUATION NECESSITATES MUCH HIGHER INTEREST RATES THAN WE ARE ACCUSTOMED TO.
• THE MARKETS ARE UNDERPRICING THE RISK THAT THE FOMC MAY BE MORE AGGRESSIVE.

 

Most markets reacted the way you would expect, but not all … 

 

Today, we’ll look at the internal signs for clues to what happens the rest of the week.

 

SPDR S&P 500 ETF (SPY)

 

The market opened below the massive 400 strike Monday.

 

Four-hundred has been a magnet for the market all year and the recent rally spent a couple of weeks gyrating above and below the key level …

 

However, as the market opened up post-holiday, trading things got serious. China protests amid extended lockdowns was a wake up call to global demand destruction.

 

Plus, in the US this week, we have a Jerome Powell speech, growth and inflation data plus the key unemployment report on Friday.

 

So as you can see when SPY opened up weaker the bullish sentiment shifted to the dangers lurking and traded off the entire day. 

 

 

The China lockdown and protest news started things off and the Fed finished piled on. 

 

Yesterday is a sentiment changer because it diminishes the probabilities of reaching levels that would trigger a new wave of buying (SPX 4060+).

 

FOMC and OpEx in the Markets Sights

 

The Fed meeting and options expiration (OpEx) have been huge market movers.

 

Check out how the last two rallies have ended; this one may not be any different:

 

Fear or missing out forced investors in to avoid underperformance in case of a Santa Claus rally.

 

However, this is no ordinary year.

 

Even Black Friday was worse than usual and any spending for Christmas will most likely be due to taking on more debt. 

 

Sell Banks on Any Bounce

 

Banks are most vulnerable in this environment. Banks got crushed once the market narrative shifted to recession. I think the market narrative will shift that way again after the next set of economic releases … 

 

SPDR Select Financial Sector ETF (Ticker: XLF)

XLF failed at $36, which is the largest gamma strike, plus the new high triggered a bearish relative strength reversal pattern – confirmed by a higher high in price but a lower high in RSI.

 

 

Consider a bearish strategy on a bounce to the 35.75 area.

 

Bring It Home

 

This week is full of new information. Here is the full list in the US:

 

 

The highlighted reports are key for the Fed.

 

At the upcoming meeting I think we will see a .50% hike, but I do leave the potential for a .75% if the data is stronger than expected and the markets are holding in. 

 

The up-to-datemarket pricing has shifted a bit towards a greater probability for a .75% hike in the past week. 

 

That is what a market rally will do …

 

So I foresee Powell coming out today with his bear hat on.

 

Stay tuned and until then …

 

Live and Trade With passion My Friend,

 

Griff