{"id":62869,"date":"2023-01-13T16:29:05","date_gmt":"2023-01-14T00:29:05","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=62869"},"modified":"2023-01-14T19:04:28","modified_gmt":"2023-01-15T03:04:28","slug":"overbought-but-making-bullish-case-with-key-breakouts-the-market-breadth","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2023\/01\/13\/overbought-but-making-bullish-case-with-key-breakouts-the-market-breadth\/","title":{"rendered":"Overbought But Making A Bullish Case With Key Breakouts – The Market Breadth"},"content":{"rendered":"\n

Stock Market Commentary<\/strong>: <\/h2>\n\n\n\n

Last week was a bullish week for the stock market. Key breakouts on the major indices made a bullish case for stocks as buying strength conjured up overbought trading conditions. Yet another post-CPI celebration sealed the deal on a bullish convergence leading into the report on inflation<\/a>. While it is tempting to scoff at the trading action as yet another bear rally, the technicals say otherwise. Sure, the earnings season may yet hold enough bad news to bring the celebration to an end, but I suspect only surprisingly harsh hawkish Fedspeak could be shocking enough to undermine the market’s renewed optimism.<\/p>\n\n\n\n

The next Federal Reserve’s release on monetary policy<\/a> comes February 1st. Financial markets are expecting the Fed to carry through on its promise to ease up on monetary tightening with a 25 basis point hike<\/a>. I could see Powell couching the hike with stern reminders of hawkish intent if the stock market ascends into full bull mode going into the February 1st release.<\/p>\n\n\n

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Target rate probabilities for 1 Feb 2023 Fed meeting<\/em><\/strong><\/figcaption><\/figure>\n<\/div>\n\n\n

The following words from Federal Reserve Governor Michelle W. Bowman<\/a> on January 10th remind me that the Fed will likely continue to reiterate its caution about repeating the mistakes of the past.<\/p>\n\n\n\n

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“From the late 1960s through the mid-1980s, the U.S. economy experienced high inflation, high unemployment, and declining living standards. During that time, policymakers prematurely eased monetary policy when the economy weakened, and inflation remained high. The FOMC was forced to return to tightening monetary policy, causing a deep recession in 1981 and 1982. This is an important lesson that guides my thinking about monetary policy and my continued support for policy actions that will continue to lower inflation.”<\/p>\n<\/blockquote>\n\n\n\n

In other words, the Fed is not going to cut rates the minute the labor market shows some weakness. This century, markets have become accustomed to a Fed eager to rush to the rescue at a moment’s notice. Bowman’s positive observations about the economy suggest the Fed assumes it has plenty of room and time before it has to reverse course on its hawkishness.<\/p>\n\n\n\n

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“While the path ahead looks uncertain, I am encouraged by three specific developments. The first is the ongoing strength of the labor market, which was further supported with last Friday’s jobs report. So far, the job market has remained resilient despite higher interest rates and slower growth. The second development is that the balance sheets of households have remained strong, with low debt levels. Low debt and strong balance sheets together with the strong labor market mean that consumers and businesses can continue to spend even as economic growth slows. The third point is the strength of the U.S. banking system, with high levels of capital and liquidity, due in large part to the reforms adopted after the last financial crisis.”<\/p>\n<\/blockquote>\n\n\n\n