The Fed did nothing to excite buyers.

PRE-OPEN MARKET COMMENTS FRIDAY – The Fed had softening labor conditions and easing inflation to support a “dovish” policy, but they didn’t budge. According to Powell, they are “happy” with the current policy. They lowered GDP growth projections for 2025 to 1.7% and they believe that inflation is heading higher. They believe that labor markets are stable.

This week we had the potential for a nice bounce and shorts should have been nervous into the FOMC statement. I expected to see some short covering early in the week and it is typical to get a bounce after a big drop like we’ve seen. If that short covering took place, it was not able to offset long-term selling pressure. That selling pressure was “risk off” by Asset Managers and they planned on doing it regardless of the Fed’s statement. We know from a Bank of America survey that Asset Managers had record low levels of cash not seen since 2010. That means they have a lot of long exposure.

Instead of calming the market, the Fed remained steadfast. Stagflation is not a good market back drop and at very least they could have hinted at a third rate cut this year. Other central banks around the world have been easing and they are more worried about deteriorating economic conditions than they are inflation.

The DOGE initiative is cutting expenses and IBM and ACN took a beating yesterday as news spread that the government is cancelling contracts. We also know that many government jobs are being axed and the Department of Education is being eliminated. That is only 4200 jobs, but the goal is to cut 100K government jobs and the Trump administration is well on their way to reaching that goal. In 2023, the government added 379K jobs and it accounted a quarter of all employment gains that year. In 2024 the government averaged 37K new jobs per month. I’m not casting judgement on the policy, only it’s impact. This is a “double whammy” because the government won’t be a source of job growth, it will be a source of layoffs.

The Fed said that uncertainty was rising because they didn’t know what the impact of tariffs would be.

There are warning signs everywhere. The price action is all we need to watch. We know that when we see a long red candle we want to preserve more than half of it and ideally, the market hugs the low. If the price action the last month was one candle, we are doing exactly that. We were due for a bounce and we didn’t get one. Sellers were in control before the FOMC and now they are going to take another crack at the Pinata.

I am expecting another leg lower and the gap down this morning is likely to accelerate. This is triple witching and we can expect some volatility. $559 is a horizontal support level that has been tested twice in the last week and if we break below it you will see some sell stops triggered. Overseas markets were weak and that will provide a headwind.

I am taking some bearish swing trades. I am prepared to take some heat if the market bounces, but that threat is minimal. I believe the table is set for another leg lower.

From a day trading standpoint it is always best to evaluate the early action. I hate chasing and we saw some wild swings yesterday. That was all program driven. I always respect long gradual moves more than I respect sharp fast moves. Yesterday the market shot higher on the open and then it spent the rest of the day in a gradual decline. That selling pressure was persistent. This morning the market is struggling to find a bid. I would focus on finding good shorts. If we get a nice bounce, consider it a gift. You will have a good entry. If the market has a down gap and go, don’t chase weak stocks that are gapping lower. Find stocks that are just breaking D1 support and that have room to drop. A slow gradual drop will be much easier to stick with and to add to. If you decide to stay sidelined, that is prudent. If the market drops quickly there will be a bounce that you can short.

Support is at SPY $559 and resistance is the close from Thursday.