That loud thud you heard Wednesday was the stock market falling out of bed as Fed Chairman Jerome Powell reminded the world that "inflation has been high for 18 months, and it is too early to think about pausing rate hikes." While the 75-basis-point rate hike was precisely what everyone was expecting, investors were bothered by Powell's statement that the Fed's terminal rate may be higher than some expected.
I'm not a hardcore Fed watcher, but if yesterday's news conference taught us anything, it's that the Fed chairman doesn't want to appear too hawkish or dovish. Too hawkish, and he has to deal with stock market dislocation, but too dovish, and stocks are off to the races and inflation remains a problem.
Maybe this is a good time for investors and CEOs to reach for a history book (or Google it) and note that from late 1994 to the peak of the Nasdaq in 2000, the federal funds effective rate hovered around 5.5% and the economy did fine. Adjustments will be required, obviously, but a 5% fed funds rate isn't the end of the world.
While I look forward to the day that Fed meetings aren't head-turning events, it's worth noting that we get the October employment report on Friday, the October Consumer Price Index (CPI) report on Nov. 10, and the next Fed rate decision is scheduled for Dec. 14.
Moving on to the stock market, while all the indexes fell apart during Powell's news conference, the Invesco QQQ Trust (QQQ) definitely took the brunt of the selling. Worse still is that QQQ collapsed beneath the volume-weighted average price (VWAP) anchored to the Oct. 13 swing low near $272.25 and closed well beneath my last-ditch support line at $268. Could the QQQ reverse Wednesday's losses and move higher today? Of course. Is that something I am immediately placing a bet on? Not a chance.
If you are day trading QQQ, I wouldn't be long unless price is holding above the session's VWAP. As long as price is under the day session's VWAP, sellers are in control and longs should be off the table. If buyers make a stand, the upside targets (for scalps) are similar to yesterday's support areas -- we're watching $268, $271 and $273. I wouldn't expect swing traders to re-enter the market without a close over the 21-day exponential moving average (EMA), and that's sitting near $275.