Technically Speaking – October

October 7, 2022

Long Term Resistance: SP500  3825 then 4050

Long Term Support:  SP500    3700 then 3625

The market fell aggressively in September, ending the month at a new 2022 low. The selling was relentless and was created by 2 factors: Fear that the Federal Reserve will raise interest rates too fast and market professionals allowing the fear of novice investors to overtake their good senses. Markets should bounce off the lows of September and the question is how high and for how long. This will depend on the Fed’s reaction to data. Right now, the Fed has no choice but to combat inflation by raising rates, because our administrations has refused to get off the Green agenda and spending spree tracks. The administration is at odds with inflation and refuses to make any fiscal changes to policy, even on a temporary basis. This creates a problem for the Fed and leaves them with the only option to raise interest rates. Unfortunately, the Fed is focused on laggard indicators where they continue to find ammunition to raise the fed funds rates.  We can all see things slowing and know things have changed. Everything we need to live is costing more and we clearly see the impact higher rates are having. The markets keep believing the Fed will also see the slowing and stop raising rates so rapidly.  Like Australia, it may be time to take a pause and see what impact your actions will have.  This is what causes the stock market bounces between the Fed meetings. If the FED does change the rhetoric, we could see a move above the SP500 4000 level and eventually back above the August highs of SP500 4300. If the Fed continues to raise rate aggressively, they will likely throw us into recession, and we could see the SP500 fall to levels well below 3500. Support would then come in anywhere from 2800 to 3200. I hope the administration will implement some good Fiscal policies before that happens. Going forward the markets will remain volatile, so you need to be proactive and able to mitigate risk. This does not mean you sell everything, and it does not mean you jump in with both feet. Reduce your portfolio to great core holdings and add to risks at the low support levels, reducing risk as markets rally to long term resistance. Stay nimble for the next couple years and eventually we can go back to buying for a longer time frame.

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