The inventory market (SPY) is at a fork within the highway coming into the two/1 Fed announcement at 2pm ET. Nevertheless, on this case there are 4 completely different instructions shares might head from right here and thus 4 buying and selling plans you need to be conscious of now. 40 yr funding professional Steve Reitmeister spells all of it out in his well timed commentary under.

January has been fairly bullish. Not simply the stable general features for shares, however the very Threat On nature of the teams that outperformed.

At this stage buyers are holding their breath ready for the following Fed announcement on Wednesday 2/1 @ 2pm ET. Something is feasible together with a softening of their hawkish stance that will give bulls a inexperienced gentle to maintain working forward.

Simply as probably is the Fed doubling down on their earlier statements that will have shares tumbling decrease as soon as once more.

Certainly, lots hangs on Wednesday’s announcement. So, let’s focus on how every potential final result would alter our buying and selling plans.

Market Commentary

I see 4 potential eventualities after this very essential Fed announcement on February 1. Let’s evaluate every and the way it might have an effect on our buying and selling plans to carve out earnings from the inventory market.

State of affairs 1: Raging Bull (the Bear is Lifeless!)

On this state of affairs the Fed makes a transparent and evident pivot of their price hike regime. Which means that they see inflation coming down sooner than anticipated and won’t need to hold charges excessive via the top of the yr as beforehand acknowledged.

This sudden dovish tilt will delight buyers because it significantly will increase the percentages of a smooth touchdown for the financial system with shares raging increased. This could compel buyers to desert their bear market outlook rapidly and change to extra Threat On alternatives that will outperform in a brand new bull market.

Or just, promote every thing that did properly in 2022 and purchase the investments that did poorly final yr with emphasis on progress over worth.

Observe that I believe the percentages of the Fed pivoting so clearly at this stage is extremely low. The following part is the extra possible bullish chance.

State of affairs 2: Cautious Bull

Right here we get extra refined hints from the Fed of a possible future pivot in coverage. Like they’re inspired by moderating inflation…and can hold charges increased for longer to guarantee that score inflation is sweet and lifeless…however simply possibly they will not need to do it for so long as beforehand acknowledged.

This might improve the present bullish bias available in the market. Nevertheless, the entire upside can be extra restricted as buyers would nonetheless be too frightened concerning the subsequent Fed assertion. And also will be very cautious as they view financial knowledge which is tilting an increasing number of in the direction of recession.

On this case, I might advocate being reasonably bullish. Whereas State of affairs 1 would compel buyers getting again to 100% lengthy…this is able to be extra like 50% lengthy the inventory market. And sure, that ought to be with the identical sort of Threat On alternatives famous above. Only a smaller allocation with ample money readily available.

Observe that this state of affairs nonetheless leaves open the possibility that the Fed stays hawkish too lengthy and we nonetheless tip over into recession with bear market coming again on the scene. That explains why solely 50% lengthy as draw back dangers nonetheless exist.

State of affairs 3: Bear Returns with a Vengeance

The Fed has proactively talked down bulls at 2 earlier junctures placing an finish to untimely rallies. I’m referring to the famed Jackson Gap speech in August the place Powell scared everybody mindless ending the 18% summer time rally with new lows within the offing.

A extra refined model of this occurred firstly of December the place he reiterated the “increased charges for longer” mantra extra instances than I can rely. Plus it was clear that they might relatively threat recession than leaving any flames of inflation within the financial system as that’s the higher long run evil.

So if Powell will get again on the “bully pulpit“, or in any means implies that bulls are WAY forward of themselves, then the bear market comes again with a vengeance. That is as a result of the longer the Fed stays hawkish…the upper the percentages a tough touchdown (recession) for the financial system.

On this case, keep bearish and keep on with the 2022 bear market playbook with inverse ETFs and conservative shares to squeeze out earnings because the market heads decrease.

State of affairs 4: Dazed & Confused

That is the place the Fed provides combined indicators. Nonetheless hawkish for a very long time to avoid wasting face given earlier statements. And but do tip their hat a little bit to moderating inflation.

This grey space results in a buying and selling vary till buyers have extra details in hand. I believe that 4,000 is the low finish with 4,200 on the excessive finish. This comes hand in hand with a ton of volatility as every new headline has buyers recalibrate the bull/bear odds.

This buying and selling vary evolves into 1 of the three different eventualities sooner or later relying on future Fed statements and well being of the financial system. The extra you assume it should turn into like state of affairs 1 or 2 means you tilt extra bullish in your buying and selling technique. And in case you nonetheless consider that the bearish state of affairs 3 is the place we find yourself…then you definitely play the buying and selling vary with the identical diploma of warning.

Conclusion

Sure, there’s a lot using on the Fed assertion. I’m ready for any of those eventualities to play out with 2 and three being the probably adopted by 4.

Little question you’re considering to your self “is not there a neater solution to put money into the inventory market?”

Sadly not.

The longer term outlook for the financial system, and thus inventory costs, isn’t 100% sure. And thus it’s MOST complicated on the 180 diploma turns from bearish to bullish or vice versa.

As soon as we make that large flip, then we get on to the straightaway. As soon as there the outlook turns into clearer permitting us to enact plans with a higher diploma of certainty.

I’ll after all dissect each phrase of the Fed announcement to find out which state of affairs we’re in with acceptable change in buying and selling technique to rapidly comply with.

Maintain onto the steering wheel tight and be prepared for something!

What To Do Subsequent?

Watch my model new presentation: “Inventory Buying and selling Plan for 2023” protecting:

• Why 2023 is a “Jekyll & Hyde” yr for shares
• Why the Bear Market Might Come Again
• 9 Trades to Revenue Now
• 2 Trades with 100%+ Upside Potential as New Bull Emerges
• And A lot Extra!

Watch “Inventory Buying and selling Plan for 2023” Now >

Wishing you a world of funding success!

Steve Reitmeister…however everybody calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Whole Return

SPY shares fell $0.47 (-0.12%) in after-hours buying and selling Tuesday. 12 months-to-date, SPY has gained 6.29%, versus a % rise within the benchmark S&P 500 index throughout the identical interval.

Concerning the Creator: Steve Reitmeister

Steve is best recognized to the StockNews viewers as “Reity”. Not solely is he the CEO of the agency, however he additionally shares his 40 years of funding expertise within the Reitmeister Whole Return portfolio. Be taught extra about Reity’s background, together with hyperlinks to his most up-to-date articles and inventory picks.

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