Friday's session started off promising, as Yellen gave the market no definitive answer about the next rate hike. Judging from the early reaction, with the US Dollar getting clubbed .5% lower, while stocks and bonds rallied, the market took this as another confirmation that the FED's easy money policies aren't going anywhere fast.
Later in the session, the animal spirits were quelled with talks of possibly two rate hikes.
However by the end of the session the VIX was back to flat and the S&P500 had recovered most of its losses.
The entire August lull came full circle on Friday as the S&P500 covered a months range in one session.
Where does the market head as we move into September?
September has not been the best month to be long the stock market.
also if you look from a momentum perspective on the S&P500, momentum has started to roll over. 14 of the previous 16 times this has occurred the stock market has experienced a trade-able pull back. The odds are increasing that that $SPY makes a move back to the August lows under $215 before resuming its methodical painting of record highs.
August has numbed market participants. The complete lack of movement has created an illusion on invulnerability. Amid Friday's Jackson Hole infused pull back.... you just knew it was going to come back.. right? Because that's what it has been doing this year, and last year, and the year before that.... Any, and every dip since the March 2009 lows has been a great buying opportunity for the S&P500. Why would Friday's dip be any different?
This weekend we are already seeing the 'two rate hike' talk being negated. Two rate hikes, one rate hike.... it's kind of like saying where you want to go on vacation. I'd like to go to Hawaii, I'd like to go to Australia.... yeah.... that all sounds great. You may plan for it, buy the tickets, book the hotels..... but the vacation doesn't start until that plane takes off.
If you want to take one thing away from, the much hyped, Jackson Hole, it's that the FED is still in no rush to raise rates. And.... yes... and... not only aren't they in a rush to raise rates, but they are exploring other tools, other methods to avert another financial crisis.
The Central Banks will do everything in their power to avert another crisis. And this means, in my view, that if we see another recession, the stock market's response could be to head even higher. The next downturn will likely see the FED buying ETF's and corporate bonds in addition to more QE. If you thought 2008 to 2016 was crazy.... you aint seen nothing yet.
The market will continue to give the allure of downside. And I think that is what we will see the next week or two. However all downside since the Financial Crisis, has been a great buying opportunity. This is what I think the action will look like the next few weeks.
I think shorter term we are going to see a pull back to around $SPY $215. And into November the $SPY will be trading near or north of $225.
Of course anything can happen between now and then. Waning momentum and some selling last week has me leaning toward some downside this coming week, which will lead to another dip buying frenzy.
I continue to watch inflation. That is the wild card for the Central Bank poker game. At this stage, the Central Banks would be ecstatic with a higher rate of inflation. However if it begins to rise faster than expectations, the Centrally Planned Asset Price Manipulation scheme could come crashing down.
However I think we are quite a while away from having to worry about inflation.... right?
And if inflation remains the trouble spot, the Central Banks will keep their easy money policies flowing.