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April PCE Report and Fed's Hawkish Stance: Stock Market Forecast and Trading Strategy


Market Commentary/Forecast - May 31, 2024

Understanding the April PCE Report and Its Impact on the Stock Market Forecast

This morning, the April personal consumption expenditures price index (PCE) was released. The PCE is an important inflation measure for the Federal Reserve because it accounts for changes in consumer behavior and has a broader scope than the Consumer Price Index (CPI). The report showed that prices rose as expected in April, with the overall PCE, including food and energy, increasing 2.7% year-over-year and 0.3% month-over-month, which aligned with forecasts. However, the core PCE, which excludes food and energy costs, increased 0.2% for the month and 2.8% annually, slightly higher than the 2.7% estimated by analysts.

Despite the figures being close to what was anticipated, recent rhetoric from Fed officials indicates they believe inflation levels are still too high. They want more progress toward the 2% target before considering policy adjustments. This stance suggests that the Federal Reserve is likely to maintain its hawkish approach in the near term.

The Fed's Hawkish Stance and Its Impact on the Economy

Higher interest rates curb economic growth by making borrowing costlier for consumers and businesses. Big-ticket household spending on items like homes and vehicles slows, and higher financing costs discourage companies from investing in expansion, equipment, and inventories. These tighter financial conditions ultimately slow overall economic growth. If restrictive monetary policy is pushed too far or maintained for too long, there is a growing risk of tipping the economy into a recession.

However, our current stock market forecast does not indicate significant market weakness until after the June 12th Fed rate announcement. Our forecast charts show indices are poised for a short-term bounce, with short-term cycles deep in the lower reversal zone today and ready to rebound.

Market Projections and Trading Strategy

Beyond a one or two-day bounce, look for continued chop into June 4th and a minor rally afterward, leading to a small June 12th peak. Here are some key points to consider in your trading strategy during this period:

  1. Short-Term Bounce: The indices are likely to experience a short-term bounce due to the current deep lower reversal zone. This bounce might last one or two days, providing a brief opportunity for gains.

  2. Continued Choppiness: After the initial bounce, expect continued choppiness in the market leading up to June 4th. This period might be characterized by sideways movement with no clear trend direction.

  3. Minor Rally: Following the choppy phase, a minor rally is projected to occur, leading up to a small peak around June 12th. This rally might provide another opportunity for short-term trading gains.

  4. Managing Stops: Continue to manage layered stop-loss orders to protect your positions during this volatile period. Setting stops under key support levels like the 2/3, 3/5, and 4/7 crossover averages can help minimize potential losses.

Key Takeaways

  • Inflation Data: The April PCE report showed that prices rose as expected, but core inflation slightly exceeded forecasts.

  • Fed's Stance: The Fed is likely to maintain its hawkish stance, keeping interest rates elevated to combat inflation.

  • Stock Market Forecast: Short-term cycles indicate a potential bounce, followed by choppiness and a minor rally leading up to June 12th.

Educational Resources and Support

To further support our members, we offer a range of educational resources, including:

  • Weekly Webinars: Every Monday, Steve Swanson shares insights and answers subscriber questions, providing valuable learning opportunities.

  • Instructional Videos: Our website features seven instructional videos that cover various aspects of trading and market analysis.

  • Daily Forecasts and Charts: Subscribers receive daily forecasts and charts to stay informed about market trends and potential turning points.

  • Phone and Email Support: We provide responsive support to assist traders with any questions or issues they may encounter.

These resources are designed to help traders at all levels enhance their skills and confidence, ensuring they can make the most of the market opportunities identified by our predictive tools.

Market Turning Points Approach

At Market Turning Points, our unique approach to the stock market forecast is rooted in the analysis of time cycles. Unlike traditional methods that rely heavily on price movements, our predictive models focus on the timing of market cycles. This approach allows us to forecast market movements with a higher degree of accuracy, even in volatile conditions.

Our Visualizer tool is a key component of this strategy, helping traders identify the optimal times to enter and exit positions based on cyclical patterns. By understanding and leveraging these patterns, our members can make informed trading decisions that align with the market's natural rhythms.

The Importance of Time in Trading

One of the core principles that set Market Turning Points apart from other trading systems is the emphasis on time rather than price. Traditional trading indicators often focus on price movements, which can be volatile and unpredictable. In contrast, our system analyzes cyclical patterns based on time, providing a more stable and reliable method for forecasting market trends.

For instance, our Donchian channels and crossover averages help identify key reversal points based on historical cyclical patterns. This approach allows traders to anticipate market moves with greater confidence, even when price changes are minimal. By focusing on time cycles, we can predict market behavior more accurately, leading to better trading outcomes.

Practical Application of Time-Based Trading

Let’s take a practical example. On May 21st, the Dow rolled over on an intermediate basis and quickly violated its crossover averages. As a result, the inverse ETF, SDOW, turned upward, and its 5- and 10-day Donchian channels signaled a bullish trend. This event illustrates how our time-based approach can identify profitable trading opportunities even in complex market conditions.

By simplifying the trading strategy and focusing on a narrower field of candidates, such as single and triple-beta ETFs on the SPX and NASDAQ, traders can increase their ability to find profitable opportunities quickly. This method reduces the noise and distraction that comes with having too many options and helps traders concentrate on high-probability trades.

Conclusion

The April PCE report and the Fed's continued hawkish stance underscore the importance of staying informed and managing your trading strategy carefully. While the market is expected to remain choppy in the short term, the projected bounce and minor rally provide opportunities for gains. By leveraging the insights from our forecast charts and managing your stops effectively, you can navigate this volatile period with confidence.

For more insights and to take advantage of our predictive tools, visit Market Turning Points and subscribe today. With our unique time-based approach to the stock market forecast, you can achieve more consistent and profitable trading outcomes.


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