DailyPlay Updates – September 21, 2022

Investment Rational

Stocks lost a percent or so yesterday, and that helped push the SPX down to 3855 – almost 1% beneath the key 3889 level we are focusing on for this and the next 3-4 Friday closes. If it weren’t for a Fed meeting today, I’d already be getting more defensive than I already am, but we do need to see what happens today to get a clearer sense of if the market is really going to break from this area or not. (My hunch is it will, and that once the lows are tested we won’t likely see the SPX get above 3820-ish.)

Should the market get a decent decline into today’s close, then we know that we will be looking to use tactical trading rallies to lean into on a fairly consistent basis, and the biggest question we’ll need to deal with is whether we are buying put spreads or selling call spreads. That will make things much easier for us and you going forward because we’ll have an even stronger market direction opinion to use consistently as the basis of our DailyPlay ideas.

If I’m right that UST 10-yr. rates are headed to 3.70% to ~3.82% — which pushes the UST 2-yr. yield to well over 4% (at its current approx. 40+ bp. differential), I can’t see how stocks can get significant traction higher. So, continue to watch rates and the dollar, for higher moves in them will likely continue to pressure equities.

No new DP idea today with the FOMC rate decision coming.