This has been a year of selling the rally.
Without fail, every bounce we have seen, has given way to new lows.
As we enter the final month of the year, coming after the biggest rally of the year, is it just another rally to sell, or the start of something bigger.
Today I’ll break down what I expect to see next and why.
Let’s dive in!
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Time to Sell
It’s important to keep the latest rally in context with what we have seen the market do this year.
In short, it’s nothing out of the ordinary.
We have been here three times already this year, hitting a resistance level after a rally.
Take a look:
Every time we have approached this level in red on the chart, it has held and sent the market lower.
At some point it is bound to break, but I’m still expecting it to hold.
Especially considering why the market rallied earlier this week – the Federal Reserve.
Jerome Powell was Not Dovish
I think the market is overshooting its range with Jerome Powell’s comments from Wednesday.
While the size of rate hikes may slow in December, that is not the pivot the market is waiting for or needs.
It is arguably a first step, but it’s going to be too little too late.
The damage from high interest rates is making its way through the economy as we speak.
It’s the strength from the economy that is holding things up so far, but that’s not going to last for long.
Cracks are already showing in employment, housing, corporate debt markets and more.
The fact the Fed is willing to adjust from their previous path is a sign those cracks are growing. And when the Fed finally pivots to reducing interest rates, it’s going too little too late once again.
They needed to make this change a few rate hikes ago, to slow the pace and shoot for a soft landing.
But why would anyone be surprised the Fed is hell bent on creating a recession and crashing the economy?
They have said that is what it will take all along and won’t stop until the job is finished.
So, yes. This is just another rally in 2022 to sell as we gear up for more pain in 2023.
This pain won’t last forever. Bear markets are short lived, just a couple of years, but extremely violent.
More violent swings are ahead.
I’ll be here to help you navigate it the entire way.
Let’s get it.
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE