Thursday was another back and forth session as the market digested Powell’s second day of testimony before Congress.
At this point, the Fed is no longer counting on a soft landing for the economy and they plan on keeping interest rates elevated until inflation starts coming down in a clear and convincing fashion. That means they could continue applying the brakes even if the economy slips into a recession. Hence, the increased likelihood of a “hard landing.”
Wednesday the S&P 500 rallied during Powell’s testimony and slipped into the close after he finished. Thursday gave us the mirror image as the market slumped during his testimony and then rallied after he concluded.
One day down, the next day up. And so continues the battle between bulls and bears. The index remains nicely above last week’s lows, but it also seems stalled just under 3,800.
As obvious as this sounds, either the market clears this sideways consolidation under 3,800 or it doesn’t. The nice thing about binary setups is they are very tradable. Either we buy the breakout or we sell the breakdown. And the longer we stay within this range, the more coiled the spring becomes, meaning the resulting breakout/breakdown will be even larger.
At this point, expect the resolution to either run up to 4k resistance or drop under recent lows near 3,600. Maybe there will be a head fake or two along the way, but as long as we start small, get in early, and keep a nearby stop, the costs of being early are small. More important is we make sure we stick with it and are standing in the right spot at the right time when this thing finally makes its next move. (Today’s nice close gives the bulls the edge.)