Fed Action Boosts Support, Market Moves Higher

2021-11-04

The announcement by the U.S. Federal Reserve that the Central Bank is making a reduction in monetary policy support resulted in over-the-top moves in the broader market — setting even more new highs.

Jerome Powell, Federal Reserve Chairman, appeared to deliver a soft blow to Wall Street by reemphasizing to market players that the current inflation is, in his words, transitory. The Fed expects inflation to slow during the second and third quarters of 2022.

The S&P 500 and the Nasdaq responded by hitting record highs. The Nasdaq was propelled by market darling Tesla which set a record high above $1,200 per share. The outlier in the rally was the DOW which dropped.

The Fed plan to taper support to the economy, which brings with it an increase to Central Bank interest rates, has traders cautious about making trades over long time frames. In this unusual environment, Simpler’s traders are watchful of a market correction.

The market historically does not like rising interest rates, even when rates are near zero.  The equity market could see some reversion back to the mean as the bond market gains investment appeal.

This market environment begs the question, “What is driving this market and how high can it go?” Is the uptrend in the market here to stay for a while? Or, is it the result of mass FOMO — Fear Of Missing Out? 

In a nerve-wracking run to new highs, the market is still bullish, although extended. The ongoing choppy pattern is the market  makes a run, corrects, loses momentum, then rips higher — leaving traders scratching their heads.

In a market that keeps traders guessing, Simpler’s traders are making small and nimble trades as the market propels upward.

As traders await technical signals and historical charts to align, buying on the downside is a possibility when there is too much upside in the indices. Our community of traders is watching closely for clear momentum shifts.