Federal Reserve Rate Statement Scheduled for Wednesday – Collapse or Breakout?

All eyes will be on the Federal Reserve rate decision on Wednesday, together with a busy week of economic data releases that have potential to move the markets.

Retail sales, initial jobless claims, industrial production, maufacturing output, CPI, PPI and Jerome Powell’s conference at 2:30PM are reasons to be cautious. There is no shortage of catalysts, so be prepared and hedge.

Federal Reserve Rate Statement

On Tuesday the Labor Department will release its November CPI inflation report, followed by the Federal Reserve on Wednesday. That said, the markets have already priced in a 50bp hike, while looking to Jerome Powell for signals regarding further tightening in 2023.

We look at this as a catalyst for big swings this week. We also anticipate we could see a resumption of choppy sideways market action like we saw on Wednesday and Thursday. As a result, we will wait for the inflation report and Fed news before adding exposure. 

Precious Metals

We wrote a post on the “safety trade” Thursday morning, as precious metals maintain a bid. We are managing positions in gold and silver as the US Dollar fades below the 200d another weak.

We have trailing stops on SLV, GLD, and the Miners, GDX.

We are cautious this week, refraining from increasing exposure until after the CPI inflation report and Federal Reserve rate decision are behind us. Be selective about new buys, in case the major indexes retreat again as they did over the past 7 sessions.

Weak Dollar

The weak dollar has been a big tailwind for the US indices, but signs of peak inflation have seen the currency fall in recent sessions.

The U.S. Dollar index extended a move that started 7 weeks ago, amid a peak in U.S. consumer inflation data. Tuesday’s report should confirm.

Many big cap technology stocks have seen their bottom lines hit due to expensive FOREX rates. If the dollar continues to weaken, it will conversely boost earnings for firms with foreign operations, bolstering their stock price.

Apple (AAPL) stock fell 3.82% in the past week, as iPhone production was impacted by a walkout at Foxconn. This is likely priced in at this point, and AAPL stock is rebounding. Microsoft (MSFT) stock also dropped 3.76%, holding at the 21d ema support. MSFT stock is still producting higher lows.

Tesla (TSLA) stock fell 8.11% last week, as it builds a triple bottom base. Tesla announced new China incentives this past week with widespread media reports that the Shanghai plant will cut production into year end and potentially halting Model Y output.

Taken together, AAPL (6.99%) and MSFT (5.63%) and TSLA with its 1.96% weighting in the SPX, represents a little less than 15% of the big cap index.

We anticipate a steady market rally will take hold, most likely in the first quarter 2023. When that happens, buying opportunities will be plentiful.

We will update you as our shopping list grows into year end. In the meantime, a large number of stocks from a variety of sectors have been setting up. Many have changed trends since October 13.

Join us today in the trading room for our LIVE broadcast during market hours, as we navigate the current environment. Watch, listen, and trade from 9:20 AM to 4:15 PM Monday through Friday.

Happy Trading, 

Vinny

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