The Powell speech is history now, with the markets having it digested and embarking on their next moves. After the back-and-forth trading of recent weeks and all the signals favoring either the bulls or the bears at different junctures, the prevailing direction appears to be down now.

Powell delivered his own version of the Fed has given its best shot and coupled it with a call for more fiscal action. The point that the markets focused on the most, appears to be that despite the swift response and pledge to do more (while ruling out negative interest rates), it’s the admittance of serious downside risks to the real economy and the fragile nature of the much-hyped recovery.

Both stocks and junk corporate bonds gave up on their efforts to reverse the preceding downswings, and stocks as the more vulnerable ones are leading on the way down. After all, should some of the reopening efforts backfire, what state of confidence would that leave the consumers and companies 6 or 8 weeks from now? The valuations would be even more extended than they have been already.

Thus, more twisting of the policymakers’ arms rules the day, and given the credit markets – S&P 500 sectors dynamics, won’t likely end all that soon. Our open and increasingly profitable short positions are justified.

Trading position (short-term; our opinion): short positions (100% position size) with stop-loss at 2970 and initial take-profit target at 2800.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care