Red Light, Green Light

by | May 2, 2023

Trading around a Fed announcement is usually tricky business.

And lately, that’s been especially true.

While what the Fed does always matters, in recent months every single syllable uttered from Fed Chairman Powell has been global news.

Stock traders desperately want the rate-raising to end. 

Because if it does end, it’s all-systems-go.

Pausing or lowering rates is the green light. 

But there’s a lot going on right now. 

The economy is slowing down and a recession looks like it’s coming. That ultimately is not good for companies, which is also not good for stocks. 

If the Fed stops raising rates (hooray!), what does that mean?

It means the economy is struggling (boo). 

Even if the market gets what it wants, it’s not great. 

And this is why the market’s been in such a constrictive channel. With the SPDR S&P 500 ETF Trust (SPY) as a proxy, if the market gets bullish, it stops and turns around at $416 level. There just isn’t enough good news to push it through.

And being rejected again today at $416 plus the Fed saying it’s still raising rates, that’s a red light. 

Overall, it’s been eight months of start and stop for the market. 

Red light, green light, red light, green light.

But if somehow the Fed delights tomorrow and we see a break above that magic $416 level, it could lead to a very bullish move. 

Like everyone else, we’ll be watching closely. 

Happy trading,


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