Trading Strategy Thoughts as We Await the Fed Decision
Short-term price action is my focus during the countdown to Powell and Co.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The big question on Wednesday afternoon is whether Jerome Powell will say something that attracts aggressive buying. The indexes are in a good position for a technical follow-through day, which means a big move on big volume. If that were to occur, it would suggest that a new uptrend had started.
The largest obstacle to a new uptrend is tariff and economic uncertainty. The Trump administration says it is negotiating with other countries to lower tariffs mutually prior to the April 2 deadline, but there is no way to know what sort of economic repercussions there might be. The Trump administration is confident that the short-term chaos will set the stage for exceptional growth down the road, but there is widespread skepticism, and the timing is extremely difficult. I think there is a good chance that the market is too negative about tariffs and that they may not turn into the headwind that is feared.
Since it is impossible to know how things will develop, I’m staying very focused on short-term price action. I will use that price action as my guide, and if it starts to improve I’ll put more cash to work regardless of what the pundits might say.
Currently, the key level to watch are the lows hit last week. If that level can continue to hold, then it will attract some buyers from the sidelines, and if Powell delivers an upbeat message, that will trigger some fear of missing out on a market turn.
I will be watching very closely for some new themes to develop and am hopeful that the long-suffering biotechnology sector may finally see some relative strength. There have been a few signs lately of rotation into the group, but it has a very long way to go since it has been a laggard for a while.
The best way to identify new themes is to watch for which groups have relative strength. Obviously, the Magnificent Seven stocks have lost their leadership role as a group. It is likely the group will bounce in better market conditions, but I don’t expect them to be the safe haven hiding places that they were for so long.
I’m optimistic about stock picking as we work through the macroeconomic issues. Index-driven moves create mispricing in individual stocks that are pushed around due to index and ETF inclusion. It won’t matter what the indices do when market players start to look more at valuations.
We’ll see what happens on the Fed news. I have plenty of capital ready to put to work.
At the time of publication, DePorre had no position in any security mentioned.
