The Walk-Back- 6/21/2021

In the news conference, Chairman Powell walked back and clarified the dovish stance outlined in the initial release. First, he clarified that rates would remain near zero – dovish. That is when the sell-off first abated.

Then, Powell indicated that the Fed would start selling some mortgage-back securities – which contracts the balance sheet and moves away from Quantitative Easing. This, along with introducing the tapering topic and more governors becoming hawkish, was enough to calm the hawks without alarming the doves.

So the market has recovered quite a bit from the initial decline. And that is why you have to give the market some time to digest all of this, sometimes even the entire next session.

Most notably, leadership completely reversed from tech to financials, which indicates that higher rates are ahead. The 10-year rate confirmed the same.

I will reserve my deeper analysis for the pre-market outlook tomorrow. So far, there is nothing extraordinary to concern us with today’s decision, except for a market that likely needs to take a rest, and this is just as good of an excuse as any. I must also assess a possible leadership change.

News often distorts the market, and today was no exception. Let’s see how we close and how the market behaves tomorrow.

Let me also harp again on the Weekly Expected Moves that I calculate every Friday for the week that follows. I specifically mentioned the WEM Low this morning – and the likelihood we would tag it in any move to the south. Once again, it was the WEM Low that caught the market in this decline. 

That is vital information to have and know. I picked up $2,500 off the low in a nice trade with a couple of S&P 500 mini futures contracts. That made spinning my wheels all day worthwhile.

Have a wonderful evening.

A.F. Thornton