• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Please Get It in Your Head to Not Fight the Fed

The mantra should sound alarm bells in your noggin, especially when so many Fed members are indicating that they are intent on fighting inflation.
By BOB BYRNE Aug 24, 2022 | 08:30 AM EDT
Stocks quotes in this article: SPY, QQQ, IWM

Aside from a flurry of activity shortly after Tuesday's regular session open, there wasn't much to get excited about in the index ETFs. The SPDR S&P 500 ETF (SPY) and Invesco QQQ Trust (QQQ) finished slightly in the red while the iShares Russell 2000 ETF (IWM) closed just above the flat line. The only conclusion I draw from Tuesday's trading is that prices near Monday's lows are being accepted as fair value, which means another lower test is likely on the way.

Several traders pinged me on Tuesday asking what changed between last week and this week to account for the shift in sentiment, and I think we all know the answer.

Immediately following the Aug. 10 release of the lower-than-expected July Consumer Price Index (CPI) numbers, investors began to believe some of the crazy talk flowing from the experts on CNBC and other media outlets that the dip in inflation would likely lead to a course reversal at the Federal Reserve. The idea of a reversal in course didn't make sense then, and I'm still confused by it. Heck, back in mid-July Richmond Federal Reserve President Tom Barkin said the following to an audience at the Rotary Club in Charlotte:

"One of the things that those who studied the 1970s would say is what you shouldn't do is restrict, stimulate, restrict, stimulate, restrict, stimulate. Every time you had a weak month in the 1970s, somebody stimulated again. That is probably not the right policy."

As much as we're all accustomed to taking our guidance from Fed Chair Jerome Powell, if you're trying to get a feel for where the Federal Open Market Committee (FOMC) stands, it's worth paying attention to every person who has a voice. And while Barkin isn't a voting member this year (he's an alternate in 2023 and a voting member in 2024), he's still worth listening to if you're trying to form an opinion.

It's more important than ever to understand your investment time horizon. As a day trader or scalper, you have the luxury of ignoring most of what the Fed is doing and simply cueing off things as simple as a session's volume-weighted average price (VWAP). But if you're an investor or position trader, the mantra of don't fight the fed should sound alarm bells in your head.

The Fed may soon reduce the size of its rate hikes, but if you want to align yourself with the direction that Powell and his Fed colleagues are taking, do you think it makes sense to be rolling the dice on them reversing course before they've signaled their intent to do so? I don't.

I wrote on Tuesday about focusing on the VWAP anchored to the mid-June swing low and the 50-day simple moving average for new swing trades on the SPY (currently around $396), and that's still the approach I favor. While day traders and scalpers should be willing to trade long when buyers are active above the session's VWAP, swing and position traders should wait for a bullish reversal and confirmation from an area they can easily measure their risk against.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Byrne had no positions in the stocks mentioned.

TAGS: ETFs | Federal Reserve | Index Funds | Interest Rates | Investing | Stocks | Trading | Real Money

More from Stocks

You Don't Have to Trade All at Once

James "Rev Shark" DePorre
Sep 23, 2023 10:00 AM EDT

Trading in multiple time frames not only reduces risks, but also provides strategic flexibility. Let me show you what I mean and how to do it.

FS Insight Weekly Roadmap: Market Response to Hawkish Fed Is an Overreaction

Tom Lee and the FSI Team
Sep 23, 2023 9:10 AM EDT

Here's why we believe 'higher for longer DUE to higher GDP' has a more dovish tone, and remain constructive for the rest of the year.

This Dividend Aristocrat Has All the Raw Materials to Make It a Top Pick

Bob Ciura
Sep 23, 2023 7:30 AM EDT

This name has been down, but now I think it's charged up to cruise into the year's end.

The Bears Just Moved Into Wall Street

James "Rev Shark" DePorre
Sep 22, 2023 4:26 PM EDT

Technically, the bears are in control of this market now.

Don't Be a Sap and Step Into a Value Trap

Bret Jensen
Sep 22, 2023 12:30 PM EDT

There are plenty of stocks that look like value plays but aren't as the market continues to drag more share prices down.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:20 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Trading in Multiple Time Frames
  • 10:24 AM EDT BRUCE KAMICH

    This Could Get Messy

    A number of key stocks are getting close to import...
  • 01:41 PM EDT CHRIS VERSACE

    Latest AAP Podcast With Helene Meisler!

    Listen in as the Action Alerts PLUS podcast talks ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login