The US markets have reacted positively to FED’s 75 basis points interest rate hike.
One would have thought with US FED’s interest rate hikes, CPI inflation numbers being high and the looming prospect of a recession, markets would further go down south.
Let’s check the overall market reaction to FED’s interest rate hike announcement
Dow Jones Industrial Average chart -
DJI index, reflects the aggregate price performance of 30 major companies of the US. DJI is considered as a barometer of the performance of the US economy.
DJI reacted with a slight price increase to the news of FED’s rate hike.
Major Resistance is at 33,000 price level.
Note -: Price is currently below the 200 Simple Day Moving Average(purple line) and 200 EMA although its above the 200 Weekly Average(Blue line).
Confirmation of a bull market will have prices break past the major price resistance range (33,037 $) and the 200 day SMA(34,156 $) and 200 EMA(33,261 $).
Standard and Poor 500 Index (S&P 500 Index)
S&P index measures the aggregate performance of 500 largest stocks in terms of market capitalization. This index is a barometer showing the general performance of the economy as a whole. The companies included in this index are from all industries.
S&P has had a positive reaction to FED rate hike announcement and major price resistance is at 4082$.
Note -: Price is currently below the 200 Simple Day Moving Average(purple line) and 200 EMA(Exponential Moving Average) although it’s above the 200 Weekly Average(Blue line).
Confirmation of a bull market will have prices break past the major price resistance range (4,082 $)and the 200 day SMA(4,348 $) and 200 EMA(4190.52 $).
Nasdaq
Nasdaq measures the price performance of major technology stocks.
From Tradingview
The index is trying to break major resistance level at 12,683$, with a green big candle yesterday, showing a positive reaction to FED’s rate hike announcement.
Note -: Price is currently below the 200 Simple Day Moving Average(purple line) and 200 EMA(Exponential Moving Average) although it’s above the 200 Weekly Average(Blue line).
Confirmation of a bull market will have prices break past the major price resistance range (12,683 $)and the 200 day SMA(14,244.4 $) and 200 EMA(13,398.5 $).
Gold
Gold is a major commodity asset, considered traditionally as a safe haven asset.
From Tradingview
Gold price also reacted with green candles in response to FED’s interest rate hike news.
Gold price is keen to break major price resistance level of 1741$.
Bitcoin
The crypto market has reacted very positively to the FED rate hike news, with prices of BTC and alt coins all in green territory post the announcement.
Coingecko
BTC’s price chart
BTC’s major resistance is in the 30,000 $ range.
There were more buyers for BTC, and very few sold the asset in immediate response to FED’s rate hike news as can be seen in BTC’s 4 hour chart.
Note -: Price is currently below the 200 Simple Day Moving Average(purple line) and 200 EMA(Exponential Moving Average).
Confirmation of a bull market will have prices break past the major price resistance range (30,000 $)and the 200 day SMA(34,345.22 $) and 200 EMA(132,631 $).
A 75 basis rate hike was no big deal for the market since it was lesser than expected
So, I can conclude that the markets felt that it was no big deal that the FED is going to raise interest rates again, that point was already factored in.
The markets may have infact been glad that FED has raised interest rates only by 75 basis points, when it could have raised it by 100 basis points.
Leverage trading and short squeeze taking price of assets up
Another reason why there seems to be a rally is leverage trading where those who were short on assets, experienced short squeeze which took the price of assets like BTC up.
The narration for the past few months is that we are in a bear market, with it known news that FED’s interest rate hike increases will reduce money supply so this discourages investments and encourages savings. A sell off of assets to have strong dollar cash position, would take prices of assets down.
So, its possible leverage traders borrowed BTC selling the asset for cash and shorted the asset believing BTC’s prices are headed further south. However, since BTC’s price rose, because of buyer activity, these short traders had to rebuy BTC at a higher price to pay back their loan. This is a short squeeze phenomenon.
Public perception of the US economy sinking entering Recession
Right now, US authorities are in denial dismissing possibilities of the US economy being in recession. This has to be decided according to Treasury secretary Janet Yellen by the Bureau of Economic Analysis. So, even if the 2rd quarter GDP growth of the US economy is negative, Janet Yellen has explained that it’s no indicator of recession as the Bureau of Economic Analysis analyzes a broad range of data based on which only they conclude about the state of the US economy.
The reality is the inflation monster cannot be controlled easily and further rate hikes may be necessary to bring inflation in check which would naturally drive the US economy into recession.
There are already news about companies laying off employers, experiencing growth slow downs, consumer spending declining and inflation increasing. All this is very indicative that the US may already be in a recessionary phase. The first quarter had a negative GDP growth of 1.6%, so public is having fears that the dreaded recessionary phase has come!!
Crude Oil prices have cooled off which is a relief!!
From Tradingview
There is some relief with Crude Oil prices cooling off, with crude oil prices falling and breaching support of 96$. This is good news for the market as Crude oil prices peaked at 130$ on March and 123$ on June. High Crude oil prices will take prices of other commodities up as well, adding to inflation.
One can expect Crude oil prices to find support at the 84$ range, after which its price may again move in any direction.
Decreasing US bond yields with this investment instrument being more in demand
From Tradingview
Since mid June, yields on 10 year, 5 year and 2 year US bonds have been falling as well. This is because investors have flocked to safe stable yield investments in uncertain time when they expected a possible crash in the market with FED’s rate hikes.
US Dollar strength has stopped increasing
US DXY index, that shows the performance of US Dollars against 6 other major currencies, is now declining, meaning US Dollars has stopped appreciating in value to other major currencies.
Conclusion
It is possible that relief rallies happen in bear market just like correction periods happen in bull markets. In such a market, it’s prudent to book profits or sell to minimise losses incurred just like buying the dips is a prudent action to do during bull markets.
These days, its hard to trade using technical analysis fundamentals because of whales and big institutional investors manipulating prices of assets bringing the price of an asset above or just below a major moving average range of 200 MA, 200 EMA and 200 WMA to initiate retailers to buy or sell asset. This may very well be playing out now, so one must be careful.
I have done this post with insights I got from Nicholus Mertin’s Macro analysis that he does in Macro Mondays. Here is his youtube channel’s link —
Disclaimer - This article is for entertainment and educational purposes only, not financial advise. I am only a crypto enthusiast, not a winning trader yet.
