Statement of Fact: I am bearish. Statement of Opinion: I see a 50% chance that stocks will continue…
breaking bearish below 4,000 to retest the June lows in coming weeks.
And the other 50% chance is that this two week slide for stocks ends here and we continue hanging out in a trading range for the near term.
Why is this the case? And what is the best trading plan?
That will be the focus of this week’s Reitmeister Total Return commentary…
Back two weeks ago, when stocks were making an assault on the 200 day moving average at 4,328, I proclaimed this to be the end of the bull run. The more likely scenario would be for the market to consolidate under that point and likely chop around in a trading range until investors were sure of their path forward (bullish or bearish).
This has proved to be fairly accurate. That’s because indeed stocks hit the wall at this major resistance level (200 day moving average).
At first it seemed like a modest round of profit taking. But then when Fed Chairman Powell stepped up to the mic in Jackson Hole things got ugly in a hurry.
Here were my thoughts on this vital topic from my Friday commentary as stocks tumbled -3.4% on the session:
“Anyone surprised by Fed Chairman Powell’s speech at Jackson Hole should have their head examined. No two ways about it because the Fed aims for consistency in their messaging. And they have been CONSISTENLY saying that inflation is way too high and they need to be vigilant in fighting that battle.
This absolutely, positively will cause “pain” to the economy. The only question is how much harm it will do. Yes, a soft landing is possible…but recession is more probable.
Thus, for stocks to rally on Thursday into this announcement was crazy. Like “put on a straight jacket” kind of crazy.
The sell off on Friday was a much more sane and logical reaction to the facts in hand. However, the final verdict on soft landing with bull market vs. recession with bear market has not been fully resolved.”
I am not the only one to stress these ideas. Here is what John Mauldin had to say on the subject on his timely piece from over the weekend:
“…I just saw Jerome Powell’s very hawkish Jackson Hole comments. I am simply going to quote some excerpts, while noting that he seems to want to bring on his inner Volcker (emphasis mine, quotes via Peter Boockvar and Axios ).
“‘The FOMC’s overarching focus right now is to bring inflation back down to our 2% goal.’
“Our responsibility to deliver price stability is unconditional… There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.”
“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against…
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