Fed Statements Drive New Rally Momentum In The Stock Markets

August 31, 2021

– Last week, the US Federal Reserve reiterated statements in support of continued easy money policies and support for a recovering US economy. Additionally, Jerome Powell made a statement suggesting tightening too early could be much more damaging than waiting until sufficient headwinds are behind us. I interpret this as stating the current inflationary concerns are less important than the current global market expectations. We can likely weather moderate inflationary concerns if the economy continues to strengthen – whereas tightening right now may not reduce inflationary concerns and may prompt a broad market slowdown within the US and globally.

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In short, traders and investors perceived these comments as “Here we go – off to the races again” and the US markets rallied sharply on Friday and in early trading on Monday, August 30, 2021.

NASDAQ/Technology Leading The Rally Charge

This Daily QLD, ProShares Ultra QQQ ETF, chart highlights the extended rally phase of the NASDAQ/QQQ. With the current Fed statements, we expect $80 to be broken as this new rally phase attempts to target $82 to $84 – another 5% higher (or more).

IWM Breaks Above Dual-Pennant/Flag Formations.

This IWM Daily, Ishares Russell 2000 ETF, and the chart clearly illustrate a very strong Dual-Pennant/Flag breakout that has taken place with Friday’s rally attempt. The move above $222.50 is very clearly an attempt to break above the Dual-Pennant/Flag channels and to break into a new Bullish price trend.

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Once resistance near $227.50 is broken, the Russell 2000 ETF, IWM, should attempt a bigger rally attempt targeting $233 to $235.

We need to see this momentum carry forward through the end of September as the end of Q3:2021 should continue to trend higher with the US Federal Reserve’s recent statements. Additionally, traders should be positioning capital ahead of the end of Q3:2021 expecting another round of strong earnings and profits in October/November – pushing the Christmas Rally into high gear.

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Chris Vermeulen
Chief Market Strategist

TheTechnicalTraders.com