Stocks are set for a substantial loss at the open as bond yields continue to rise, and worries about a possible recession are building. It has been straight down after the market jumped last Wednesday afternoon following comments by Fed Chair Powell that an interest rate hike of 0.75% was unlikely.
After Powell called inflationary pressures 'transitory' last year, the market didn't hesitate to take an opposite view, and currently, the market thinks that chances of a 0.75% hike at the next meeting are very likely.
Uncertainty about inflation and the economy is producing the most dramatic downside momentum we have seen since the pandemic panic. However, the big difference is that the Fed is not in a position to bail out the market this time. There aren't going to be trillions in monetary and fiscal stimulus, and that is what is really helping to drive the selling pressure.
This drop is much more similar to the 2008-9 bear market when we had tremendous volatility before a bottom was eventually formed. The market was saved by fiscal and monetary action at that time also, so that is really the big difference again.
As is typical, when there is this much selling pressure, there are plenty of traders trying to time some sort of oversold bounce. The biggest bounces always occur in the worst markets, but this is extremely difficult timing.
Nothing is more important right now than to be very clear about time frames and trading styles. This is not a market that will bail you out if you make a mistake. You can't just buy a 'good' stock and expect the market to appreciate its superior fundamentals.
If you are a longer-term investor, there is very little to do right now. Trying to catch the exact low isn't worth the risk, and it is going to take some time for technical conditions to improve.
For short-term traders, there is a very high level of volatility, and that is going to create some fast moves but time frames have to be hours or minutes in order to control risk.
I suspect there will be many traders looking for an intraday bounce today after a sizable gap down open. This action has the smell of capitulation and has definitely become quite extreme, but if you are playing the short-term game, you need to be extremely vigilant and manage risk tightly.
The good news is that there are plenty of great stocks that are being absolutely pounded without regard to their merits. The bad news is that they may go lower, and it will take time before technical conditions improve.