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Powell Speaks Friday
www.oneoption.com
The majority of Fed officials are reluctant to cut rates based on the FOMC Minutes from last month.
PRE-OPEN MARKET COMMENTS THURSDAY – Fed officials are concerned about job growth and inflation and they are weighing which of the two is more important. Stagflation is not good for the market so anyway you slice it, conditions are deteriorating. This morning initial jobless claims came in at 235K and that is an increase from 226K last week. This number has been artificially low and it has stayed that way the last few months when we know there have been job losses.
WMT said that it is feeling the impact of the tariffs. They are hiking prices where they can and absorbing the costs elsewhere. Revenues beat expectations, but profits missed for the first time since May 2022. This week Home Depot reported similar.
Powell is going to speak 30 minutes after the open Friday and the market is expecting dovish rhetoric that points to a 25 basis point rate cut in September. If he his statement is balanced, the market will drop. It wants confirmation of a rate cut and it does not want him to hedge his comments. Fed Fund futures are pricing in a 100% likelihood of easing next month. If the Fed cuts interest rates it is a sign that economic conditions are slipping.
I feel the odds of a negative reaction are higher than the odds of a big market rally after his comments. A rate cut is priced in and surprise favors the downside. I am not taking any big positions, but I will take a few short positions in stocks that have already been drifting lower and that are below technical resistance. If the market rallies, these stocks will have a difficult time rallying. If the market drops, these stocks have already shown weakness. I am not chasing stocks that have dropped dramatically. They need to be fairly tight to resistance and the EMA 8.
Jackson Hole has the potential to drive the market the rest of the month. The most prudent course of action is to wait and see. Traders are not going to take large positions ahead of the news and this could be a dull day. Overseas markets were down slightly overnight.
I don’t want to chase this overnight drop. If you did that yesterday, you took a hit if you overstayed your welcome. This bull market will die hard and buyers are always lurking. I will approach the day as if this is going to be choppy trading ahead of major news and I will focus on finding a short or two that I am comfortable holding overnight. That means I am not likely to trade the first two hours. I will be watching, evaluating, searching and setting alerts.
Support and resistance are the range from yesterday and I believe the market will stay inside of that range.
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