Weekend Market Report - Anything Can Happen

If this week taught us anything about the market, it's that anything can happen and what the Federal reserve does has deep implications on the direction. The market was relatively tame Monday and Tuesday ahead of the Fed announcement, then got extremely volatile on Wednesday during the Fed announcement and continued the rest of the week.

At first the market seemed to be inspired by the Fed comments and rose over 3% on Wednesday, but gave back all of those gains and then some on Thursday falling nearly 5% intraday. As if that were not enough, it continued to fall on Friday down over 2% intraday.. 

Although the initial reaction to the Fed comments was positive, the overall impact of the announcement continued to pressure the market to the downside. It would appear that the information the Fed delivered didn't inspire much confidence that they have things under control. So far the market has corrected more than 25% since the late December peak when talks of extreme levels of inflation and increasing interest rate first started.. 

That said, in the past, the Federal Reserve has reacted to 20-25% corrections by lowering interest rates and adding QE stimulus but with only so many levers to pull and their backs against the wall, it seems for now they will stick to their plans of increasing interest rates and tightening balance sheets to curb inflation even if at the expense of a continued stock market crash. 

Back in late December, I blogged that the market signal had switched to market in correction and that subscribers should definitely be 100% in cash unless they were astute short seller and could take advantage of the market downturn. I continue that posture.. 

Despite all of that there have been some opportunities to exploit market weakness and oversold rallies. In the Model Stock Portfolio, we have managed to pick up some gains both on the short side and the long side playing strategic turns in the market using ETF's. 

These turns have come on the shorts when the market has run into resistance at former support levels and coinciding moving averages like the 21 EMA (yellow), 50 day simple moving average (green) and the 200 SMA (white). On the long side, these turns have come when the market undercuts a prior low. 

In the coming week, it seems possible that the market may find support along the top of the base structure created back in Sept - Oct of 2020. This may be an opportunity to play the long side for short term rally.. Look for potential opportunity posts in the model stock portfolio forum/blog post.