Technically Speaking – November

November 8, 2022

Long Term Resistance: SP 500  3950-4000  then 4200 – 4300

Long Term Support: SP 500 3450 – 3500

October saw the markets turn around and have a positive month. The 30 stock Dow was up 14%, which was the best 1 month rally since 1976. Most of the rally was due to the over bearishness that existed after such a poor September.  In addition, some of the FED board members started discussing publicly that November could be the last of the 75 basis point rate increases and the markets welcomed that. Break outs of technical resistance cause investors who were short to cover forcing the markets to rally to SP500 3900 plus. The Fed will raise rates again in November, but the news conference after could determine the short term direction of the markets. Chairman Powell has stated that we will all have to feel pain in order to tame inflation, but I am NOT in that camp. I am puzzled why they need to destroy a pretty healthy economy and increase unemployment because of their ill-fated policies. I think they should recognize by now that the supply chain problem could have been relieved sometime back. The Federal Reserve can only work with monetary policy so when they thought, wrongly of course, that inflation was transitory and allowed it to get away from them. The only way they can combat inflation is eliminating the demand side which means raising interest rates. They MUST realize what is happening and NOT make another mistake by going too far. The housing market is about to fall off the cliff.  Interest rates have stalled new buyers and have made many buyers become non-qualifiers for mortgages at the new higher rates.

Many of the big bank CEO’s have started to say the economy is in trouble, however the lagging economic numbers are not yet showing that. Hold on, they will soon. Any talk from Powell during his meeting that says he feels the Fed needs to pause and see the effects of their recent interest rate increases should push the markets higher.  We are in a seasonally strong period so with any decent news I can see the SP500 flirting with 4000 again. If it breaks 4000 it may rally back to the August highs of 4300 during Q1 of 2023. I am not sure we can get that high, so use the rally to lighten up on your risk portion of your portfolio.  I still believe we will pay the piper sometime next year. All the stimulus money and free give aways cannot and will not be sustained with out seeing a reevaluation of the economy. The good news is we are starting from a much higher level so a big move down is probably SP500 2800 – 3400. The markets will bottom at some point in the future, probably at lower levels after we rally. NEVER sell everything because things can change and maybe we can get a surprisingly great fiscal policy from Congress that can keep us from having to experience another big downturn.

For the foreseeable future, invest cautiously and please learn how to MITIGATE your risk.

 

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