With the 10 year treasury note dipping below 2%, interest rates seem to be contradicting the all-time highs in stocks. Given the size of the bond market, it's prudent to listen when it speaks. This is a good time to take a step back and gain some perspective on the markets as a whole now that the Fed has laid its cards on the table.
If we zoom in on the S&P 500 (20 minute chart below), it's clear to see the reaction from the market was not favorable for the bulls. Note how the market immediately sold off, then tried to reclaim the previous levels (above red dotted line) where it was quickly smothered by more sell orders. The selling at this point in time was so overwhelming that it eventually flooded the market which can be seen and furthermore read as a result of the vertical price movement into the close of business on Friday. Can you see that transition below?
If we add a little more data to the picture (60 minute chart below) we can also see how the buying behavior in June was consistently stair-stepping in an organized fashion. Quick distinction -- can you see how the two most recent swings on the way up are virtually identical? This can be viewed as an agenda or a campaign toward needing or simply wanting to own, buy stocks. Yet, once the FOMC made its announcement, the market stopped this behavior (which can be seen by crossing over the red dotted line) and more interestingly, failed at the very trend line it had spent close to two months building.
Does this mean stocks are doomed? Should we all go to cash now? Will I ever be able to retire? Should I stop getting caramel macchiatos at Starbucks? Answer: maybe OR maybe not but it might be helpful to get some coffee because big failures in the markets often lead to bigger moves in the opposite direction. Think about how eager you would be to get on a plane after knowing its last flight was cut short because it landed in the ocean.
Lastly, if we look at the macro picture, (weekly chart below) this past weeks selloff is a blip on the radar with respect to the overall trend we've experienced since 2009. The key takeaway here is context, the markets have been doing little to nothing since January of 2018, despite what the media would like you to believe. See "how much of the 18.74% did you capture" https://www.principles1.com/post/question-how-much-of-the-18-74-did-you-capture That said, if we switch our focus to the macro picture we can often get lost in the forest. BUT, if we get to microscopic on the day to day, week to week time-frames we can also make poor impulsive long-term decisions. What's the solution? It's a balance between them all, with a full understanding that every long-term bull market or bear market begins on a 1 minute chart or smaller so we need to be more adept at reading the markets as a whole.
As always, there is so much more to learn about these charts so we can observe where the money is flowing and ultimately stay ahead of the curve or at least keep from waking up to a 2008 with our proverbial pants down, ie, make more strategic decisions as investors.
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