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Most stocks started to rally ahead of the FOMC meeting and accelerated their ascent afterward. 25 basis points increase in rates is probably viewed as too conservative. The take is clear – there’s is rampaging inflation that is not likely to taper any time soon and the Fed is being overly careful with the interest rates increases.
The bounce in most stocks last week was statistically significant. The S&P 500 gained more than 1% four days in a row. All cyclical sectors gained. The worst-hit groups went up the most – Europe, China, software, biotech. The odds are that this is just a bear-market bounce but we have to also admit that is normal to distrust any rally after the constant breakout failures and 50-90% drops in so many stocks in the past four months. Trends die hard because sentiment changes slowly – this is why there are so many bounces in uptrends and downside reversals in downtrends. Sentiment follows price action.
I am operating from the view that this is a bear-market rally. I am still participating in it but taking quick profits. If the major indexes can go back over their flat to rising 20, 50, and 200-day moving averages, I will have a good reason to change my mind and tactics and look for longer-term holdings.
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