From Keith Harwood, OptionHotline.com
The market is not in a bull trend. But is it in a bear trend?
When I look at the way the market is flowing, I can’t say for sure that we are in a bear market even if it feels that way after weeks of downward momentum.
The FOMC continues to raise rates, and that’s the way it has to be due to inflation, but let’s look at a few inputs to see if they have to keep raising rates, or if Evans is right that they don’t have to go so fast anymore.
First, we should look at TLT, the ETF representing the 20+ year treasury bonds:
As you can see, there has been a major downward move here, and that’s expected. After all, bond funds need to fall when interest rates rise, and they need to rise when interest rates fall. Even with the comments from Evans, TLT continues to fall, so the market isn’t prepared to say that he’s right that we may need to slow down on rate hikes, yet.
But, what about a big inflation marker in oil? Let’s look at USO to evaluate that:
As you can see, oil continues to fall and show a major slowdown in inflation. It’s not the perfect inflation metric, but it’s a pretty good indicator of where commodity prices are at right now.
Finally, we have to look at the stock market itself, and for that, I’ll look at SPY, an ETF that tracks the S&P 500:
As you can see, the market is testing the lows of June, and that could be enough to slow down the FOMC on its own as the goal is certainly not to put the economy into a major recession via rate hikes. If the FOMC starts to see that as a likely result, I expect they will try to pump the brakes and let the market recover.
And that leads to my main trading thesis for now: rangebound markets! We don’t have to see new lows, but we also likely won’t see new highs. New highs might indicate the FOMC can raise rates more aggressively to continue to get back to normalcy, but new lows would indicate to them that they may have to slow down. Instead, I’m thinking about stability in markets, tightening ranges, and generally more of a stock-pickers market. And, while that requires a lot more work than just buying everything, it can be exceptionally profitable for the smart investor if they can find a sector that’s breaking out of the market range and then express that trading view with options.
If you’d like to learn more, please go to http://optionhotline.com to review how I traditionally apply technical signals and probability analysis to my options trades. As always, if you have any questions, never hesitate to reach out.