Enter the Market Realm of Static

Static, as an adjective, means “lacking in movement, action or change.”

As a noun, it means a “crackling or hissing noise like on a TV.”

In physics, used as another adjective, it means “concerned with bodies at rest or forces in equilibrium.”

Put it all together and we get an inert, crackling market that has forces keeping it in equilibrium.

In other words, with the Fed action, the rally initially stopped moving.

The crackling noise was the sound of nervous longs bailing out.

And, the talk of rising rates became the opposite and equal force to the fears of near-term inflation.

Hence, buyers came back in thereafter.

The tone of the Fed was not quite as dovish as some had intimated.

A few of the members had stated that they were in no rush to continue to reduce the balance sheet.

Yet, given the strong unemployment numbers and the 2% inflation target met, Chairman Powell expressed confidence in continuing economic growth.

Then, why is static electricity making my hair stand on ends?

Some believe that the Fed is hiking now, so they can reduce rates once an anticipated recession hits in 2020.

Maybe.

But I am of the mind that Powell’s statement that the growth of inflation based on oil prices will abate, is myopic.

The Fed prefers to use the CPI number that excludes food and energy prices. That rose 1.8% year-to-year.

Furthermore, the way the Fed is looking at the CPI means they will allow the CPI to exceed 2% for a while.

To me, that means that should (and easily could) inflation become unmanageable, the Fed has no recourse but to raise faster.

The commodities versus equities ratio I pointed out some months ago at historical lows will shift.

Any slowdown of economic growth (highly likely in an overheated economy) spells-STAGFLATION. (A different form of static)

The scourge of the Fed and the equities market.

For now, watch the usual suspects.

  1. Transportation (IYT) consolidating around $200.
  2. The 20-Year Treasury Bonds (TLT) now in an unconfirmed bearish phase.
  3. The US Dollar, trading below the 200 week moving average.
  4. And, gold and silver-both of which (especially silver) could explode to the upside.

“The most ominous of fallacies-the belief that things can be kept static by inaction” Freya Stark-Explorer

S&P 500 (SPY) Got right to resistance at 279-280.40 again. 278 now support to hold or it will see 276.35 level next

Russell 2000 (IWM) 168-168.28 target may have been hit with the high of 167.94. Will look to see if it clears there and if holds 165.

Dow (DIA) 250 support. 255 some resistance

Nasdaq (QQQ) 176 now pivotal. Support to hold 172.50-173