Now that the Fed has thrown everything at the market including the kitchen sink, namely by raising the Fed Funds rate by another .75 and signalling they will continue to raise rates as much as necessary down the road, traders are wondering what might come next. All you have to do is take a look at the chart below, which shows the S&P is at the same level it was back in May, to see that the worst of the selling is likely over and that the market could be getting ready for a strong rally into year-end.
Just think about it. All the Fed has done is continue to raise rates, and it has vowed to continue raising rates as long as necessary. In other words, a very hawkish stance. Yet the S&P is well above the October 13 low of 3491, likely because those who have considered stepping to the sidelines already have. Could we go lower here? Of course. But it’s going to have to happen during the most bullish time of the year and after many companies have already come to the earnings confessional — i.e. traders have already absorbed an awful lot of bad news, including the increasingly hawkish Fed.
So where do we go from here? If we do get the rally I believe will come, then, as you can see above, the first key target would be the 200-day moving average on the S&P, just below 4100. That would represent an increase of almost 9% based on Friday’s close. Should the bulls manage to clear that level, then 4325, the August 16 high, would be next. If you tend to be more conservative, you might want to wait to see if we get a pullback to right around 3650, which should provide price support. After that is the biggie, 3491, and if that were to go, all bets would be off.
In the meantime, our Chief Market Strategist Tom Bowley is going to be conducting a timely, highly educational webinar this Saturday, November 5 at 10:00am ET, titled “Understanding Market Manipulation for More Profitable Trades.” It’s a FREE event that’s filling up fast and you can learn more and register by clicking here.
At your service,
John Hopkins
EarningsBeats.com