The Bond Market Is Telling the Fed To Hike

February 7, 2022

Posted 9:45 AM ET – The S&P 500 tested the 200-day MA last Friday and it bounced just before it touched it. This retest will give buyers renewed confidence. My short term market opinion has a short term bullish bias. My longer term market opinion is that the January range will hold until the March FOMC meeting and we are likely to see big moves within that range.

There is a 95% chance for a Fed rate hike in March. Some Fed officials feel that three straight rate hikes are needed. New Omnicron cases are decreasing and 467,000 jobs were added in January. Wages increased .7% and that is inflationary. As much as the stock market does not want a rate hike, the bond market is telling the Fed it’s time.

Earnings have been stellar. As it currently stands, the revenue growth rate is 15.0% for the quarter. This is the third highest (year-over-year) revenue growth rate reported by the index since FactSet began tracking this metric in 2008. Profit growth for the quarter is 29.2% and if it stands it will mark the fourth straight quarter of earnings growth above 25% for the index. The last time the index reported four straight quarters of earnings growth above 25% was Q4 2009 through Q3 2010. Yes, valuations are high, but companies are delivering.

Swing traders should use the 200-day MA as a stop on a closing basis (check the SPY 5 minutes before the close). We are going to let the SPY move around during the day, but we want it to close above that support level. If it does not, take your gains. Our entry was below that level. If you sold bullish put spreads early in the week, those positions should be in good shape. Make sure the stocks are maintaining relative strength today. They should be well above the technical support level you are leaning on and the spreads should be out of the money. If they are not, you need to consider closing the spreads down (particularly if the SPY closes below the 200-day MA). We just put these spreads on a few days ago at lower levels so you should be in decent shape.

Day traders should watch the open. Be patient and wait for clear signs. The 1OP cycles will help you. 1OP will start off in a deep trough and there will be an early bullish cross. I was very bullish heading into the close on Friday. That very long bullish divergence Friday leads me to believe that we are going higher. The only pattern that will get me to buy early is stacked consecutive green candles with little to no overlap in the first 30 minutes. The SPY tested the 200-day MA and that will give buyers confidence. If I do not get that pattern I will wait for the action to unfold. Overseas markets were generally positive.

Support is at the 200-day MA and resistance is at the high from Friday and the 100-day MA. That leaves us with a nice wide range.
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