Early hours this morning as expected the FED cut interest rates by 25 basis points.
The US rallied out of the decision. The FED maintained a balanced view and stressed there is a solid outlook for the US economy.
Let’s take a look back in time.
September 18th 2007,
the Federal reserve cut interest rates and stated the US economy did not appear to be heading into a recession.
The assessment was for slower growth, but positive growth going into the following year (2008).
The US stock market continued to rally to record highs leading into early October, before…. wiping off over 50% of the stock market equity.
We all know or have heard about the 2007/08 GFC. Many analysts and recession indicators are suggesting something similar could be coming.
The 10 year 3 month bond yield curve inverted in August, this has predicted each of the last recessions. Yet the market is continuing to edge higher.
History appears to be repeating itself so far.
Yesterday, September the 18th 2019, the Federal Reserve cut interest rates which is now helping the market push towards record highs leading into October.
The FED stressed the US economy looks positive
Similarly, the RSI in 2007 had a bearish divergence, we also have the same bearish divergence today.
Trade Set Up: SELL Dow Jones at 27,280, short term take profit of 25900, long term take profit of 24,600, stop losses will be set above 27900.We will also enter a second position at 27450, with the same stop loss and take profit.
Will we see a similar scenario, who knows.. However, October is generally a negative month for US equities.
The only thing keeping the markets high at the moment, is the US and China meeting planned for mid October, but that could change very quickly.
Ensure you are using the correct risk management. A single trade should not result in a large loss to your overall balance.