Central bankers worldwide are letting investors know in no uncertain terms that they aren’t done raising rates.
After a flurry of buying early in the week on the back of soft CPI figures in the US, the 50-basis-point rate rise and hawkish commentary from the Fed later in the week knocked the stuffing out of the bulls.
I have been warning you for weeks to be aware that the rally was heading into stiff overhead resistance.
There are now plenty of dominoes lined up beneath the market that could ignite a wave of selling to the downside.
As we head into the Christmas break, there is a chance that a sell-off could be exacerbated by the lack of liquidity.
In the ASX 200 (currently 7,136), my line in the sand is 7,000, which is where the 200-day moving average sits. It is also the area where a few technical signals will be set off that warn of more downside to come.
The S&P 500 confirmed a weekly sell pivot last week, and a move below the 10-week exponential moving average from here should see the selling pressure increase.
I give you a detailed analysis of the situation in the S&P 500 and ASX 200 in the ‘Closing Bell’ video above because forewarned is forearmed.
I took profits in the four biggest winners in my trading service, Retirement Trader, during the week on the day before the FOMC meeting due to the explosive technical setup.
The next six months could be a rocky ride if the market underestimates how high rates will go and how much earnings will be affected by the sharp increase in yields over the past year.
But as long as you can survive the next bout of volatility, you should be in a good position to start picking up a few bargains for the next bull run.
Until next week,
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Murray Dawes,
Editor, Money Weekend
