Fed News, Market ‘Levers’

2020-06-16 | Simpler Trading Team

Will this market continue to “live and die” by the Fed?

Fed announcements Monday and Tuesday sparked significant rallies in the stock market. Monday may have tanked and Tuesday skyrocketed out of the gate on Fed news of buying corporate bonds and rejecting negative interest rates, respectively.

Coupled with news of expanded Covid-19 treatments and a surprising surge in retail sales, the markets responded with a strong uptick.

But what is the rule for following the news?

Don’t fight the market, but keep an eye on what’s happening on the charts.

While the Fed works its ways, the indexes provide signals to navigate the news-driven volatility.

Simpler’s traders maintain watch on the hourly SPY to follow movement of the S&P 500. The shorter time frame limits risk against sudden market shifts. Observations here are that as long as the hourly SPY keeps developing in the Fed-fueled uptrend, markets will follow that track.

If the hourly SPY starts breaking the trend, be cautious.

Other “levers” of the market being watched are the dollar, bonds, and VIX (Volatility Index).

Market history indicates that if the dollar and bonds are grumpy... the stock market is happy.

The dollar shows potential for a decline while bonds could be described as “a mess.”

And the market moves along.

The VIX is a warning light. This 30-day outlook is having good days, but appears overbought and hasn’t recovered full losses from the pandemic downturn.

Market action is day-to-day and moves quickly. Deciding which chart signals to watch and how to react in shorter time frames is the new norm in trading.

Good news is the market is revealing a seemingly constant renewal of potentially high-probability setups.

Caution is prudent when playing this market.

We Saw: markets explode to the upside on the open — 

  • The major indexes hold the uptick through the session
  • Market reacting to almost anything Fed unveils
  • Markets liking news of expanded Covid-19 treatments

We’re Watching: … for more opportunistic setups —

  • For a flush as early as this week
  • To balance on the surfboard in shark-infested waters
  • Possible setups: TSLA, MSFT, AAPL, PTON, NKE

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