Weekly Update: The Number One Driver of Stock Prices
The number one driver of stock prices right now is the Federal Reserve and expectations of where they will set interest rates.
Stocks made a powerful move higher on Wednesday after Fed Chairman Jerome Powell indicated they may begin slowing the pace of rate hikes as early as December.
Personally, I could care less what the man has to say. Powell is the reason we are in this mess in the first place.
He ran the printing presses at max capacity in 2020, printing trillions of dollars in stimulus funny money. That, and that alone, is the reason for today’s historic inflation.
Now, in a complete 180, he is raising interest rates faster than any time in history in order to tame the very inflation he created.
Let’s not forget that this is the man who claimed inflation would be “transitory” (a fancy word for temporary) and the economy would not enter a recession (we are in one).
Powell has been wrong on every prediction so far, and his actions were responsible for both over-inflating stocks in 2020 and 2021 and crushing them in 2022.
The least he could do is keep his mouth shut and not stir up even more volatility.
But regardless of my feelings about the little weasel, he has been clear about the Fed’s current mission – tame inflation by any means necessary. That means rate hike after rate hike to engineer a recession until inflation comes down to his 2% goal.
In my opinion, Wall Street overreacted on Wednesday and turned prematurely optimistic based on a single comment about possibly slowing rate hikes.
Wall Street is betting on Powell to pivot… to change his stance and lower rates to help the economy. Powell will not pivot. He is an extremist. And I believe there is more pain to come.
The S&P 500 has now rallied 15% from its October lows, but the 200-day moving average is likely to hold stocks back.
The Nasdaq is also facing heavy resistance:
This remains a stock picker’s market. Throwing a dart at a board would have turned over winners in 2021, but this year has proved more difficult than most.
I encourage traders to stick to low-risk, high-probability trades and nail down profits when you have them.
The easy days will return. In fact, I expect the market to bottom in the next three months. But until then, it is best to play things tight.
Here are a few trades I am watching right now:
Lantheus Holdings (LNTH)
LNTH is what I call a “broken leader.” This is a stock that once led the market but has now rolled over and begun its decline.
We made money shorting this stock near $77 back in October.
I would consider getting short again in the $62-$65 area with the 50- and 200-day moving averages above likely to act as resistance.
Centrus Energy (LEU)
LEU has been unable to rally, even with the aggressive buying that took place last week.
There is a shelf of support near $36 along with the 200-day moving average.
If the stock breaks below here, especially on heavy volume, I will consider selling short.
Enphase Energy (ENPH)
ENPH is a solar stock that has been a market leader all year.
We picked up a huge win on this one back in July when it emerged from a breakout pattern.
Today, ENPH is breaking out again from an almost identical pattern.
Consider a long in ENPH with a tight stop near $303.