Now that we have been away from our charts for a couple of days, it is time to take a look at this week, and what could be setting up. The markets were interesting on Friday, as we saw the the NASDAQ 100 shoot higher by over 4%. The catch is, has something changed? One thing has, there are massive buybacks by US corporations at the moment, with the possibility of over $1 trillion this year alone. If that is really going to be the case, it stands to reason with every major dips, companies are buying their shares back from the general public that is tired of being waxed.
There is also the new narrative that because the Bank of Canada and the Reserve Bank of Australia have recently raised by less than expected, the Federal Reserve certainly must follow suit. This is nonsense, and I suspect that this Wednesday could set up for disappointment. After all, if Powell continues to favor tightening conditions, it is likely that the market will sell off risk assets as a result. In the meantime, the higher the market (stocks and other risk assets) goes, the more interested I am in fading the move.
Take a look at the NASDAQ 100 below. Notice how even with the recent rush back into the stock market, it is but a blip on the radar. While I don’t think it is the ultimate decision when it comes to risk, it is a general idea of what people think at the moment. I suspect that there could be a bit of follow through this week to begin with, but if Uncle Jerome goes medieval on the markets via the press conference and questions and answers period, things to fall apart quickly. On the other hand, if he does exactly what people think, then it is possible that we drift higher, not race. Having said that, in a market like the one we have had recently – it is paramount that you are cautious with your position size more than anything else.