Markets Hoping A pause In Rate Hikes. Will Powell Oblige?

Market sentiment at the end of 2018 was markedly bad, due to three factors:

  • Hawkish Rates (Was December’s FOMC meeting a policy mistake?)
  • Lower-Than-Expected Corporate Results (e.g., Apple)
  • Economic¬†Headwinds

As a result, equity prices went into a tailspin. Former darlings of the market such as FAANGS suffered massive corrections. These selloffs did great technical damage to many long-term bullish stock patterns.

For the Dow Jones Industrial, the big question now is whether the former support at 23,500-24,000 has now converted into resistance. The index broke this support decisively last December. Look at its chart. Surely there are plenty of ‘stale bull’ above this 24,000 level, ie, those who bought at when the risk sentiment was much more bullish, in hopes that the Dow will advance to 30,000.

For now, I expect the rebound from 22,000 to be constrained by this level. This is because the Fed has not revealed its hand for the year. Investors are hoping that the Fed will now pause its hikes. But this is yet to be confirmed by the central bank.

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