It's Not About the Rate Cut. It's About the Expectations.
There's a never-ending parade of pro-rate cut chatter on TV. Whether we get it or not, the market will react to the expectations of a cut.
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I am certain that someone can show us a chart of the expectations for a Fed rate cut in September. Anecdotally, there has been a never-ending parade of folks who have come on television this week to discuss the upcoming Fed rate cut in September as if it is a certainty.
As you know, I am not an economist, and I don’t even play one on tv (nor did I stay at a Holiday Inn last night), so I have no idea what the Fed will do or not do. Nor would I consider myself qualified to even know if the economy is slowing enough to warrant a rate cut, let alone whether or not it should be 25 or 50 basis points. But I do know when expectations are loaded up to one side, and the expectation for a cut is loaded for September. We better hope we get one, or there will be a lot of disappointed folks out there.
The rally continues to be centered in the big-cap tech names. That is not to say the others aren’t joining the party, but they are falling behind; mega-cap tech is leading. If we compare last Thursday’s rally to Tuesday’s rally, we get pretty much the same net breadth. However when it comes to volume, last Thursday saw 85% of the volume on the upside while Tuesday saw 79% of the volume on the upside. I would consider that close, but not great.
There have been studies that show once you’ve gotten a day where 90% of the volume is on the downside (last Monday), if it is quickly followed by a day where 90% of the volume is on the upside, it’s like cancelling out the down day. The alternative is two consecutive 80% up days. So we’ve missed that.
I am not such a stickler. Nor am I a stickler about resistance or support. Resistance at the 5400 area on the S&P is quite obvious, as is that 460 area I highlighted on the QQQs. I can see the market having a pullback on Wednesday only to rally one more time later in the week. Just enough to get folks wondering. I still think we are more apt to see some downside next week, not this week.
The way I figure it by the end of this week the Overbought/Oversold Oscillator will be over the zero line, having erased this short term oversold condition. It’s the math (as usual).
I want to end by reviewing the chart of the SOX that someone requested. The chart itself is not a pretty one. It came all the way down to test the April low. And if it stops at 5200 it will have a textbook head and shoulders top.
Should we get a pullback and another rally we may very well get this to 5200-ish by early next week and then I’d look for a more serious pullback. But since I think spike lows tend to hold on the first trip down, I do not think that 4200 area breaks now. It’s possible the SOX just goes into a wide trading range.
I may see it differently a month or so from now but for the time being I think semis got sold out and should rally some more before coming back down.
