What the Fed?

Our weekly ETF charting education focus

As I say frequently, the market tells us a story, and we just need to learn how to listen to it. But that story is sometimes conveyed through a third party. And one of the most prominent of those is US Federal Reserve Chairman Jerome Powell, who shook the stock market on Wednesday with what was interpreted as a rejection of investors’ clamoring for interest rate cuts.

The market’s treatment of the press conference Powell gives after each Fed meeting is one of the ways in which markets have dramatically changed over the past decade. The rapt attention given to every phrase and how it can be interpreted, and what the algorithmic trading machines will do with it, is a big determinant of what happens to regular people’s money in the short run.

But where I get more angry than usual at this type of gamification of the science and art of investing is when these Fed “moments” (they call their reports meeting minutes, but they lead to pivotal moments in the markets) start to last longer than before. That is happening more and more. The late-2023 rally had a lot to do with the market convincing itself that the Fed would start cutting interest rates in early 2024. Yesterday’s latest Fed “must-see TV event” reversed some of that enthusiasm, quickly.

This is part of the adaptation to modern markets and the folly that comes with them. And that is where technical analysis, the skill set I’ve been working on for 44 years, can come in especially handy at times like these.

Here’s our updated depth chart, covering my relative ranking of 10 major market segments, through the ETFs that represent them.

Premium subscribers can take a look at their shared research deck Google sheet, which now has 2 updated lists I promised earlier this week, making for an easier, more to-the-point format.

• The “Tactical 10”: 10 ETFs for fresh money, shorter-term time frame

• The “Long-term 10” 10 ETFs for long-term aggressive appreciation potential

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The ETFYourself.com Depth Chart (free version)

Bonds move up as investors’ excitement moves down. T-bills still “best of breed” and commodities hanging in. But can we ever really trust commodities markets?

As for stocks, all of these major market indicators look like they are a week away from tipping over. And small caps, even the IJR we use here, which is a better group of companies than the Russell 2000 ETF (IWM), is threatening to rollover hard. But we’ll see. I’ve thought that before.

Highlighted segment of the week (noted in yellow above)

Bonds have a “bid.” This daily chart of IEF, the middle part of the US Treasury yield curve, is hinting at a breakout in price. The 10-year Treasury yield snuck under 4% Wednesday, where it has not been very often since last summer.

Here’s a preview of what’s to come, technically speaking. The 10-year (not pictured here) dropping below 3.75% with some force behind it could accelerate a drop in yields to the low 3% range. And frankly, while bond bulls would rejoice, that might signify that the economy is faltering at a rapid rate. More on this story as it develops. Because holy cow, it is starting to develop!