How I learned to stopped worrying about slowing growth and love the Fed

I was asked today by one of my clients if I felt Powell's statement regarding the Fed soon to announce a plan to stop shrinking the $4 billion balance sheet and if I thought the market had it priced in or if there was more upside. Then I read a piece from Ray Dalio from Bridgewater, the largest hedge fund in the world. Ray's point was he was less concerned about a US recession ahead of the next Presidential election.

"Because the markets weakened and Fed officials now see that the economy and inflation are weak there has been a shift to an easier stance by the Fed. Similarly, because of weaker markets, economies, and inflation rates in other countries, other central banks have also become more inclined to ease, though they have less room to ease than the Fed. For these reasons, while I still expect that there will be a significant slowing of growth in the US and most other countries, I have lowered my odds of a US recession coming prior to the US presidential election to about 35%. More specifically, the Fed now has both a) the power to lower interest rates by 2+% and to pick up QE and b) the willingness to do that if needed to prevent a recession."

He lowered the odds of a recession to 35% from 50%. Seriously. Whew what a relief. Then this

"In summary while the Fed probably doesn’t have enough firepower to offset a deep recession, the big sag that we expect is probably manageable. More specifically, the Fed now has 250bps of easing (which will be more impactful than typical because of the longer durations of assets this cycle), plus the ability to turn QE back on, which we estimate is roughly equivalent to the 4% to 5% of easing typically required to get out of recessions. The story is different in different parts of the world and our economies are connected. So, when looking at the whole picture, it is more concerning."

Now I want to crawl into a cave or find an island that doesn't have WIFI and I'm bearish!  I don't believe a 2.5% Fed Funds Rate is a good place to start cutting if the Fed is needed and having a $4 billion Fed balance sheet will limit a "shock and awe" QE program.

Stay defensive.   A lot of recent upside DeMark Sequential, Aggressive Sequential (they trigger ahead of normal Sequential and work well in volatile times as they have less stringent perimeters) Combo's, and Setup 9's but now there are price flips seen which are prices below 4 previous closes. Follow through is essential now. S&P bullish sentiment is at 79% and that's quite high so there is a lot of downside runway.

The PPO Monitor is a proprietary monitor developed to force rank Indexes, Sectors, and Stocks. It ranks top down by strongest to weakest by percentage above/below the 50 day moving average. Shorter term signals can be seen when the 10 and 20 day moving averages turn up (green) or down (red) which often are followed by the 50 day moving average. This is useful to watch for historically overbought/oversold percentage above/below the 50 day moving average. It is non correlated with the DeMark Indicators however we have found upside/downside exhaustion signals often occur when something rises to the top or drifts to the bottom of the monitor - increasing the timing aspect. We share this monitor with clients with Bloomberg Terminals. An added feature is that each market/ETF can be expanded with each component force ranked in the same way. A couple other features include price deviation from intraday VWAP (useful for intraday reversals) and new 20 day highs/lows on right side. Please inquire if you would like to be permissioned to use the PPO Monitor.

Today's highlights: More ETF's are breaking the 10 and 20 day moving averages as a sign of weakness starting.

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