To The Moon

The central bank will commence its two-day policy meeting on Tuesday and is possibly staring at a dilemma as to whether continue on its rate hike path to tame in the sticky inflation or consider pausing for the time being until more clarity emerges on the extent of the ongoing banking crisis.

U.S. Presidential candidate Vivek Ramaswamy slammed the Federal Reserve ahead of its policy announcement on Wednesday, saying the central bank is the root cause of “the disaster,” referring to the ongoing banking crisis, and yet “everyone is hanging on to their words.”

Pause or even cut interest rates?

"The fact that we are paying this much attention to the FOMC meeting, to the Federal Reserve at all, when in fact the Federal Reserve has actually been the source of this disaster for the last 25 years when they expanded their mandate to try to play this game of financial god — managing both inflation and unemployment, it’s like trying to hit two targets with one arrow. It has been a disastrous 25-year experiment," Ramaswamy said. He pointed out that market participants keenly watching out for every word spoken by Federal Reserve officials has nothing to do with their wisdom.

"What the Fed used to do in the 80s and in the early 90s was actually focussing on stabilizing the dollar. I think this is the under-discussed story in the whole thing. They are the root cause of this whole thing. Yet here we are hanging on to their words not because they have any special wisdom, remember that. It’s just a question of market participants looking at how much more damage they possibly or are actually going to do," he said.

WHAT IS A BEAR FLAG?

A bear flag is a technical pattern that provides an extension/continuation to an existing downward trend. The bear flag formation is underlined from an initial strong directional move down, followed by a consolidation channel in an upwards direction (see image below). The strong move down is known as the ‘flagpole’ whilst the consolidation is referred to as the ‘flag’ itself.

Bear Flag Formation Summary:

1. Preceding downtrend (flag pole)

2. Identify upward sloping consolidation (bear flag)

3. If the retracement becomes higher than 50%, it may not be a flag pattern. Ideally, we’ll see the retracement be less than 38%

4. Enter at top of flag or on breakout below the low of the lower channel

5. Look for prices to break lower with a length equal to the size of the flag pole

The bear flag is regarded as an extremely reliable price pattern when all its unique formation features are adhered to.

Some traders fall into the trap of mistaking a bearish flag pattern for a bullish breakout. Bearish flag patterns tend to be gradual rises in price in a downward trend whereas breakouts often exhibit sharper moves to the upside. There are indicators to assist traders in spotting potential breakouts with one of these being the Donchian channel.

Fed wants 400, give them 400

As stated in the bear flag summary point 3, the Fibonacci retracement was rejected at 61.8% on 17 March, way above the 50% mark which invalidated the bear flag theory. There is a chance to trade within the channel before a final breakout after 2 days of inside bar candle pattern posted yesterday. This back-to-back inside bar occurrence last happened was in Sepat ember 2021!

Back-to-back inside bar 

The CME FedWatch Tool shows over 73% probability of a 25 bps rate hike during this policy compared to over 26% chance of status quo. 

So what do you think? 🤔 

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