Today's Closing on a local Triple Top - Where to Now?Given the somewhat bullish news from the Fed today, a rate hike of only 50 basis points and no larger hikes in the near future, things seem to be looking up.
The news gave way to a major rally midday, erasing losses since- well, last Monday.
However, it should be noted that the fed slipped in a dirty curveball: in June it will start a multi-trillion dollar balance sheet runoff starting June 1st.
In the month ahead, it should be expected that the market will be trying to gauge what this will mean for them.
As a hint, the last time the Fed dumped its balance sheet in response to extreme economic conditions was in December of 2008. October's decline caused a run-up in the fed's balance sheet as the housing market began to tilt sideways. When things seemed stable, the Fed ran off nearly 20% of its holdings in the 2 months following- before the stock market reached its lows that following March. This coming runoff isn't nearly as drastic, as the fed maintains a $8.9 trillion fund and is only giving up $47.5 billion a month for the first three months, and $90 billion for the next three. This equates to only a 4.6% drop, over a much longer period of time.
Will the balance sheet runoff be enough to curb inflation? Only time will tell.
However, I take it as a sign that we've not yet hit the bottom in this market.
Continuing this thought, let's look at the hourly chart for the S&P 500.
We're seeing some resistance at the 4300 mark. We seem to have closed on a Triple Top, and today's rally wasn't enough to blow past this target ( again! ). The previous two times we've hit this figure, it looks like we've declined by 3% & 5%. My best guess is that if tomorrow does not carry this rally's momentum higher, we'll be seeing a 8% decline from here by Monday. If after fully digesting today's news the market decides to continue its rally into tomorrow, we could even reach the top of this bearish channel. However, the RSI on this chart seems to have topped out and the MACD seems ready for a reversal.
Basic technicals seem to point downward from here. If we break out of the bottom of this channel, as outlined in the chart, it could spell gloomy days for the market overall. This resonates with the nervous "big crash" bears, I'm sure. But what do you think? Are we to continue the rally this week, or bounce off of this triple top?
