- The NASDAQ 100 Index rallied a bit again on Friday as we continue to see the market “climb the wall of worry.”
- After all, the market will continue to see a lot of noisy behavior, and therefore volatility. It is a difficult market to hold onto, but for those that have, they have been rewarded.
The 13,500 level above is likely to be a significant barrier, just as we had seen during the trading session on Thursday. Ultimately, if the market were to struggle in this area, then it’s likely that the market would struggle a bit of the time to try to get above there. On the other hand, if we break down below the massive red candlestick from the trading session on Thursday, then I think we have a pullback to the 13,000 level just waiting to happen.
Federal Reserve at the Center
Unfortunately, this will have nothing to do with the companies or the economy. Everything is going to be about the Federal Reserve and the idea of what they will be doing as far as interest rates. The Federal Reserve still swears up and down that they are going to do whatever they can to fight inflation, which is the same thing as saying they are going to keep monetary policy tight. However, Wall Street has run with the narrative that they are going to have to be less restrictive with monetary policy due to the fact that inflation has slowed a bit. However, it’s unfortunately still much above the Federal Reserve target rate, which is 2%. In fact, inflation is still roaring at 8.5% year-over-year, so it does make a certain amount of sense that we would see tight monetary policy going forward.
At this point, you can take a look at the 10-year yield in the United States to see how things play out for the stock market overall. If we see a sudden sharpening in rates, that would be negative for stocks. At the moment, the falling rates have propelled the market to the upside, but the reality is that the rates are falling because a lot of bond buyers are preparing for a recession. That obviously is not good for the market as well. Given enough time, I do think we will have a wicked pullback, but if we break above the 13,500 level, that opens up the gates for even more rallies. The average bear market rally is roughly 21%, which is just where we happen to be at.
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