Momentum Monday – Another post-FOMC selloff

MarketSmith powers the charts in this video

The large-caps ETF SPY, the small-caps ETF IWM, and the semiconductor ETF SMH were rejected again near their declining 50-week moving average after the FOMC meeting and Powell’s briefing last Wednesday. They keep making lower highs. The downtrend is still firmly intact.

The Fed raised interest rates again. This time by “only 50bps”. The market was paying more attention to their guidance – the majority of Fed members expect an interest rate of 5%+ for the entire 2023. The market sold off because it believes that the Fed might be behind the curve again, potentially laying down the foundation for a recession at some point in 2023. The Fed is not worried about a recession. It has proven that it is easy to get out of one – cut interest rates, buy bonds, flood the system with liquidity, and encourage more fiscal spending by the government. What they have not proven yet is that they can stop inflation. This is why I understand their willingness to overdo the tightening but to make sure the inflation bug is squished for good.

Recessions are not as scary as the mass media is trying to present them. They are a natural part of the economic cycle and eventually result in a stronger, leaner, more productive economy. I don’t know how long this bear market is going to last. For some stocks, it has been 22 months long already so we are very likely in the second half of it. When this bear market ends, it will present a generational opportunity to build wealth. You have to have the capital to take advantage of it. This is why it is important to protect it during turbulent times.

Bear markets are rare and there is nothing wrong with taking advantage of volatile markets if you are a skillful short-term trader. The average investor is not. I am still active every single day but I trade smaller. There will be better times to be aggressive. 

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