Will the Fed 'Cause' a Mini-Crash?
That was quite a week we just had in the market. In fact, if you are a news follower, you are probably confused as hell.
Let’s start with the Wednesday announcement of the higher-than-expected inflation numbers. Of course, almost everyone assumed the market would drop on such news. Well, as Gomer Pyle used to say, “surprise, surprise, surprise.”
Not only did the market rally, but between the higher inflation information published on Wednesday and Thursday, the market rallied 70 points in the S&P 500 (off the pre-market low in the futures). And, for those not counting, that is a 1.6% rally on stronger-than-expected inflation numbers.
When I read an article on just how bad some view this inflation data, it was no surprise when I saw the following comment:
“I am bewildered by the market’s reaction to the data from the past 2 days.”
I assume that was likely the feeling of most during those days.
Now, I want to show you what we expected as we came in last week. As you can see, we were looking for the market to rally last week to our target/resistance box.
Last week, I noted that as long as the market remained below 4515SPX, I was looking for that rally to set up a downside move.
As we now know, the high struck on Thursday was 4512, and then we saw a sizeable downside move on Friday. In fact, we gave back the entire rally off the Wednesday premarket low and then some.
Yet, the interesting thing about Friday’s 1.2% decline was that it was not accompanied by any news. And, when I perused the headlines and what people were writing about the decline, it made me chuckle at how they struggled to explain it. Here is one example.
“The Dow Jones Industrial Average index fell by over 300 points on Friday after United States President
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