It's THAT Time Again!

Good Wednesday Morning, MPTraders!  March 22, 2023 Pre-Market Update: It's THAT time again!  Fed Day... 

Ed Hyman, terrific PhD economist of ISI-Evercore fame reminds us that EVERY TIME THERE HAS BEEN A FINANCIAL OR MARKET CRISIS DURING A TIGHTENING CYCLE, THE FED HAS PAUSED OR OTHERWISE REVERSED COURSE. 

I think most of us agree that the 8 interest rate hikes since 3/16/22 that ratcheted-up the Fed funds rate from 0 to 4.50% in historically rapid time (12 months) finally "broke something" or otherwise exposed a glaring weakness in the (regional) banking system, and thus can be considered what Hyman describes as a "crisis during a tightening cycle."

So the Fed should pause, or otherwise signal the market that it "gets it," and will ease off the brakes, indicating that up the road, if inflation rears itself to higher levels than say 6%, the Fed will re-engage the rate hike cycle.

One look at the BIG Picture Chart setup in KRE (Regional Bank ETF) however, makes me pause, but not in the same way as the Fed might later today. KRE has carved out such a massive Top Formation since January 2021 that remains unfinished on the downside that it is difficult for me to reconcile a "successful" or sustained bullish response to whatever Powell & Company do and say later today. Based on the pattern setup, KRE has unfinished business down to the 33 to 35 target zone, which from current prices at 45.80 represents a further decline of 25% to 28% 

That said, as a variation, I can see a knee-jerk positive reaction to today's news that pops KRE to the 50 area to close the partially UN-filled down-gap area left behind on 3/13/23 from 50.69, followed by a nosedive to new lows beneath 42 in route to 33-35 thereafter.

In any case, the Big Picture setup remains negative for KRE, which leads me to the conclusion that any remedial measures attempted by the Fed today will prove to be a bandaid on a larger problem, and will alert investors that the SVB, SGNY, Silvergate, and FRC debacles were merely the first shot over the bow... 

ES next...



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