Could A Sustained Rally Now Be Underway in U.S. Stock Prices?

The #1 most reliable guide to winning in the stock market is "Don't Fight The Fed!". Since almost every Fed Governor and almost every Fed President are standing firmly in line behind Fed Chairman Powell's current hawkish stance on monetary policy, we should therefore be out of U.S. stocks now! RIGHT? 

WRONG!! 

It is my strong view right now that the Fed is about to "pause" in its self-proclaimed path to higher short term interest rates, and that except for the possibility of one last 1/4 point hike, the next multiple change in short term interest rates will be to the downside. 

BIG money in stocks is made when you can see the next major turn in Fed policy, especially if that change is "imminent" and not well discounted by investors. Imminent is defined as 6 months or less. 

The Fed is now looking for overwhelming evidence of "disinflation" before pausing in its path to higher rates. However, almost all the economic data that I am looking at right now reflects actual "deflation" year-over-year. 

If this is true, then U.S. Government's reported inflation indicators are actually lagging real world data and they will soon catch up! And when they do, U.S. stock prices will soar (in response to a major reversal in the Fed's monetary policy from hawkish to dovish)!!

Bottom line: It's time to jump on the Northbound train in U.S. stocks! And it's time to expand holdings of precious metals mining stocks!!

U.S. Stock Market Looks Tired

Just a quick note here this afternoon, Sunday, November 27, 2022.

The U.S. stock market looks tired to me after a decent "counter trend" rally since the reaction lows of mid-October. The popular S&P 500 ETF (symbol SPY) has rebounded 15.58% since its intra-day low as posted on October 13th.

As you can see from the chart below, potential resistance to any further advance comes in the form of the overhead (and downward sloping) 200-day moving average line and also a fairly significant downtrend line.

While I am unconvinced that a major new decline will reassert itself here, I do believe that the odds favor at least a consolidation of recent gains if not an actual minor correction to potentially retest the recent lows as set in mid-October.

For some strange reason, the U.S. Federal Reserve seems to be working against the bullish case for stocks with hawkish comments almost daily regarding the near-term trajectory of short term interest rates. While it's obvious to me that a U.S. recession is imminent and that a meaningful peak in inflation has already been posted, Federal Reserve officials seem to feel obligated to warn investors that inflation is still a major problem (when it's not) and that an imminent economic recession is not likely (even though it is).

It might be prudent for traders and investors to exit any long positions now (except gold) in favor of a sideline stance while Fed officials continue to fight the last war (inflation) and not the next war (recession and unemployment).

S&P 500 Index ETF (SPY) with 200-day Moving Average Line