Don't Blame Powell for Stocks Selling Off
The headline for today's market action might have been: "Fed Chair Powell's comments cause interest rates to jump and stocks to sell off."
That statement has some truth to it, but it is much more complicated. Bonds did pull back and yields did rise. Also, the dollar jumped higher and breadth was better than three-to-one negative. All of those are natural consequences of a more hawkish Fed but what really happened was that the news event was a triggering event for sell programs.
There was nothing at all surprising about what Powell said. He wasn't unusually hawkish or dovish but his appearance before Congress was a trigger for movement. The computer algorithms didn't really care what way the market moved. They just wanted movement and the path of least resistance was downward.
So now what? The last time we had a selling trigger like this it led to the unravelling of the short-volatility trade and produced a breath-taking dip. It is possible that we see a replay of that as some other structural flaws come into play but there is no way to know if that will actually occur.
The prudent move here is to assume more downside. Technically, there isn't any immediate support and, as we have seen, the tendency of the market for the past month is sizable sustained moves in both directions.
I've been complaining about a lack of good entries the last couple days so in that regard, it is a refreshing shift to have some pullbacks. Still, I don't want to buy too early.
The market is going out at the lows of the day and the bar looks pretty similar to what we had back on Jan. 30. I am going to stand aside and see how things develop from here.
Have a good evening. I'll see you tomorrow.
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At the time of publication, Rev Shark had no positions in any securities mentioned.