To The Moon

The Federal Reserve raised its policy rate by another 75 basis points on Wednesday to a range of 3% and 3.25% at the conclusion of its two-day meeting of the Federal Open Market Committee (FOMC). The FOMC forecasts another 125 basis points of hikes by year end which implies that the policy rate will reach 4.4%, and a terminal rate of 4.6% next year, aiming to bring inflation down to the Fed’s target rate of 2%. This means that monetary policy will remain restrictive over the next few years and on Wednesday the Fed reduced its growth forecast for 2022 to 2024. The Fed expects to ease rates to 3.9% in 2024 and fall to 2.9% in 2025. The Federal Reserve is aiming to restore price stability despite the risk that it will drive unemployment higher and tip the weakening economy into a recession.

The $SPDR S&P 500 ETF Trust(SPY)$ has lost more than 20% since the onset of the year, consistently forming lower lows and lower highs since peaking on January 5, 2022 and is currently trading at its lowest level in two years. The SPY's index - the S&P 500 - was hard hit since August 17, 2022, as recession fears are rising. The selling pressure intensified over the past week as outlook remains bleak and investors are bracing for the worst earnings season in two years. Trillions of dollars have been ripped off the value of the stock market and all three major U.S. indices have fallen more than 20% since the onset of the year and the current state of play suggests the market has further to fall before hitting a bottom.

This year's trend for the S&P 500 says "down, down, down!"

The current price action is flirting with its key support of 3,636 which appears to be hardly any hurdle on the way down. The daily and weekly charts look as bearish as they could possibly be, and we see a decisive break below support as imminent. The first potential downside target is 3,570, followed by 3,400 over the medium-term. The weekly RSI indicator is tragically weak; therefore, we might be far from bottoming. The daily RSI indicator has entered oversold territory on Friday, but even putting our rosy glasses the potential upcoming short-term rebound is likely to be short-lived, as geo-political tension between Russia and the West escalates, and we enter the seasonally weak month of October. Therefore, any potential short-term rebound is likely to be arrested around 3,880.

Overall, the technical and fundamental backdrop has not improved, and investors should brace for more volatility and weakness in the coming months.

Like earlier articles indicated, this is a strong opportunity to make a bet on the S&P 500 for some solid tactical gains via the deployment of low-cost, loss-limited Exchange-Traded Products, the likes of which are available on the Tiger Brokers platform. For instance, the -3X S&P 500 ETP - $LS -3X SHORT SPY ETP(SPYS.UK)$ - is currently trading in the $7-8 range, showing increasingly solid gains week-on-week and is available to tactical investors in Europe and Asia. 

This article is part of a weekly technical analysis series prepared by my colleague Violeta. I'm posting them here on TTM on her behalf.

For articles on broader economic events that are tangential to tactical market movements, visit asianomics.substack.com