Why Luke Lango believes the S&P is about to take off … Fed Chair Powell’s gift to the bulls … a market approach that can win, even if a rally fizzles … calling all traders – put next Wed on your radar
Did the Federal Reserve spark a huge rally in stocks on Wednesday?
Our hypergrowth expert and the editor of Innovation Investor Luke Lango believes so.
If you missed it, on Wednesday, the Federal Reserve held interest rates steady at its current target level of 5.25% – 5.50%. This had been expected.
What sent the market racing higher for a stretch Wednesday afternoon and yesterday (and has Luke bullish) was a specific comment from Federal Reserve Chairman Jerome Powell during his live press conference.
In short, Powell put to bed fears that the Fed might respond to the recent resurgence in inflation with a rate hike. Wall Street has been growing uneasy about this in recent weeks as economic and inflation data have come in hotter than expected.
With Powell largely taking a rate hike off the table, Luke believes the last roadblock standing in the way of a stock market rally has been removed:
We believe the Federal Reserve may have just saved the U.S. economy from a recession – and given investors the green light for a huge summer rally.
Let’s begin today’s Digest with more from Luke’s Fed analysis, and why he’s banking on a major rally.
Powell’s dovish gift to the bulls
In recent weeks, comments from various Fed presidents have put Wall Street on edge.
Back in March, there was Fed Governor Michelle Bowman referencing a potential hike:
While the current stance of monetary policy appears to be at a restrictive level that will bring inflation down to 2% over time, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed.
Then came Federal Reserve Bank of Minneapolis President Neel Kashkari from early-April:
In March, I had jotted down two rate cuts this year if inflation continues to fall back towards our 2% target. If we continue to see inflation moving sideways, then that would make me question whether we needed to do those rate cuts at all.
And here’s Atlanta Federal Reserve Bank President Raphael Bostic from mid-April:
If it seems that the level of restrictiveness that we’re at today is not enough to do the job or get the job done, I’d have to be open to increasing rates.
But then came Wednesday with Powell downplaying these concerns:
I think it’s unlikely that the next policy rate move will be a hike. I’d say it’s unlikely.
Here’s Luke’s take, which covers more of Powell’s commentary:
[During Wednesday’s press conference] Powell largely doubled-down on his December outlook. He kept saying that monetary policy is currently sufficiently restrictive to get inflation back to 2%. He said that we likely don’t need another rate hike and that cuts are still likely on the way.
In other words, Powell confirmed the bull thesis on stocks.
Just consider; for the past 40 years, whenever the Fed has cut rates while the economy has continued to expand, stocks have rallied every single time.
It’s quite a rare combination of factors. And it always means great things for stocks.
To support this conclusion, Luke highlights the mid-1980s when the Fed cut rates while the economy was growing. During that period, the market jumped about 65%.
There was also the mid-1990s. The Fed cut three times during an economic expansion. The S&P 500 rallied 90%.
In the late ‘90s, it was two rate cuts leading to a 50% market rally. And in the late 2010s, rate cuts during an expansion resulted in a 30% market rally.
Back to Luke for his bottom line:
The historical precedent is clear. Whenever the Fed cuts rates while the economy continues to grow, stocks rally.
That’s about to happen all over again. And the Fed confirmed as much Wednesday.
Now, if you’ve read the Digests over the last two days, you noticed that my analysis has skewed bearish
How do we resolve Luke’s bullishness with my caution?
Well, first, that’s the beauty of being an independent publisher. We believe it’s an advantage to offer our readers differing views of the market. Too much tunnel vision confirming your pre-existing market belief is a great way to get blindsided by an unexpected market move.
That said, while my own analysis has leaned bearish, I’ve done my best to urge investors to remain in this market as long as their stop-losses allow. After all, we want to benefit from today’s bullish trend.
This focus on “trend” brings us back to a point from yesterday’s Digest – trading is a fantastic way to resolve the unknown of which direction the market is headed. It enables you to be nimble, making money from the market whichever way the trend is headed.
To illustrate, let’s turn to the latest member of our corporate family, Jonathan Rose, who’s the analyst behind Masters in Trading Live.
Jonathan has made more than $10 million from trading over the course of his career. He’s been able to do this, in part, because he trades whatever direction the market is giving him at the moment.
For example, in 2008, the S&P crashed 38.5%. Meanwhile, Jonathan made over $4 million that year.
To help you understand how he does this, let’s look at two of Jonathan’s recent trades.
Riding the Nasdaq whether it’s heading up or down
Here’s Jonathan to set the stage:
For the past few weeks, members of my Masters in Trading program and I have been watching the action in the Invesco QQQ Trust (QQQ), which is a fund tracking the Nasdaq Index.
Part of how I like to monitor performance is looking for the current critical level of the market — what I like to call my “Line in the Sand.” This can be either a level of support or resistance depending on how markets are trending in relation to that line.
This is a fantastic concept to help us simplify our fundamental view of the market… If we’re trading above the line, we’re in a bullish trend, and if we’re below our line, we consider that to be bearish.
For QQQ, we’ve focused extensively on the critical $433 level.
Below, let’s look at QQQ over the last few months. I’ve added a blue, dotted line at $433.
Notice how this level has served as both support and resistance. It has also been an approximate average value for the QQQ over this period.
In early February, the market approached the mid-430s three times in two weeks before breaking out, which provided us a solid buy signal.
That $433 resistance then turned into support, undergoing several tests through March and into mid-April.
Jonathan and his Masters in Traders Live followers rode QQQ higher until Jonathan began to see the trend changing.
When QQQ traded around $445, he suggested his followers look to short-dated QQQ options to hedge their downside risk.
To be clear, part of this decision was because Jonathan’s overall trading portfolio was skewing too bullish. This is an example of how an expert trader operates – making decisions with the entire portfolio in mind, not just a single position.
Here’s Jonathan with how things played out after they went short QQQ (meaning they would be profitable if QQQ fell in value):
Later that afternoon, market anxieties about inflation and unemployment triggered a sell-off, with the S&P 500 and QQQ dropping 1.2% and 2.4%, respectively.
By the next day, both sets of our QQQ puts were in the money, with the $433 puts closing for a 116% gain, and the $442 puts for a 279% gain overnight!
This is the beauty of trading. Being nimble enables you to be on both sides of the trend.
Next Wednesday, May 8 at 10 am ET, Jonathan is holding his first ever Masters in Trading Summit that dives much deeper in this trading approach
You’ll get more on how Jonathan is trading the markets today, some of the trades he’s most excited about, and most importantly, the #1 indicator that helps market makers find trades that go up 90.3% of the time.
He’ll also detail the results of a recent 6-week, live experiment in which he closed seven out of seven trades for an average gain of 125%.
By the way, if you’re new to trading and much of our QQQ example today feels new and/or foreign to you, don’t worry. Jonathan’s analytical skills are matched by his ability to make trading concepts simple and easy to grasp. But don’t take my word for it – join us on Wednesday and see what you think. There’s no obligation of any kind. Just click here to reserve your seat today.
Circling back to the top of this Digest, if Luke is right, get ready for stocks to break out into summer. But even if the market has other ideas in mind, a trading approach offers flexibility and ways to profit regardless of how things trend.
If you’re nervous about how to position yourself today, I encourage you to join Jonathan next Wednesday to learn more about the many benefits of trading.
Have a good evening,
Jeff Remsburg
