Pre-Fed Update – 11/2/2022

Good Morning:

• First, I will be in the Founders Trading Room at 10:30 am EST to prepare for the 11:00 am Fed rate announcement. The consensus continues to be 75 bps. A few speculate that a full point is possible, but I will stick with 75.
• The focus is on the forward guidance if any. Most likely, the Fed will guide that everything will be data-driven. I do not expect them to be dovish.
• The meeting comes on the heels of Europe reporting 10.1% inflation last month and a relatively dysfunctional U.S. Treasury market. 
• In that regard, and given the Fed’s opposition to the free-spending Orwell Administration, the Treasury could counter the Fed by announcing its Operation Twist recycling program – to tap down rates at the long end of the curve and attempt to boost the stock market into the midterms.
• But there are many other volatility events ahead of us near-term, including October unemployment on Friday, the mid-term elections, CPI next week, etc. But getting the Fed out of the way for a few months helps the bulls.
• Yesterday the market dropped rapidly into our lower boundary at 3845. Futures were flat overnight, holding 3860.
• I anticipate a quiet morning ahead of the Fed announcement. Resistance is at 3900, then 3950. Support shows at 3850, then 3800. But given all the recent volatility, the wider range is 4000 overhead and 3600 below.
• The short-dated implied volatility for the S&P 500 is near 40% today, suggesting traders are looking for a 2% move. That would be plus or minus 75 points from yesterday’s close, around 3862.
• My advice is to forget the Fed and the news. We are in the markup phase of the Nominal 20-week cycle, and it is still early. 
• Looking at the dailty chart, more sellers await at 4000, rather than here. But even those are the lightweights. The big sellers presently congregate at 4150. 
• My best GUESS is that after some initial selling following today’s meeting, the market drives up to 4150. After gains convince everyone that a new bull market is underway, the floor will give way to one of the worst, steady, and most destructive declines in stock market memory into March. 
• I don’t know what the catalyst will be – just that there will be one.
• I hope I am wrong; it wouldn’t be the first time. But let’s take it day by day, and we will get positioned for the next leg once the dust settles.
• As we all know, we rank our decision process first on price action, second on the Navigator Algorithm, and last on A.F. Thornton’s opinion. I rank last for good reason! Always defer to rules number one and two,

A.F. Thornton