Legendary Trader John Bollinger Breaks Silence on Fed Rate Cut

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As a seasoned analyst with over three decades of market observation under my belt, I must admit that yesterday’s Federal Reserve rate cut was not entirely unexpected. However, the positive market reaction, particularly in the cryptocurrency sector, caught my attention.

Yesterday, the Federal Reserve took a substantial step by reducing the Federal Funds Rate by 0.5%. This decision was based on continued economic growth, albeit at a slower pace of job creation and a minor increase in the unemployment rate. Inflation, while still slightly above the desired level, is gradually approaching the Fed’s target of 2%.

Following the significant reduction in rates, there was an optimistic response across markets, particularly observing expansion in the cryptocurrency industry. The attention of investors remains focused on the Federal Reserve’s upcoming decisions, as they continue to evaluate economic information and potential risks prior to contemplating any more modifications to interest rates.

A significant response was given by well-known financial analyst John Bollinger, famous for developing the Bollinger Bands trading indicator. As investors considered the impact of the interest rate reduction, Bollinger suggested that these adjustments should be seen as a restoration to normal conditions, rather than just a relaxation of monetary policy.

Ron’s on it.

— John Bollinger (@bbands) September 18, 2024

What’s next?

In simpler terms, it can be inferred that once issues with long positions are resolved, there should be no cause for a decline. However, we’re not discussing geopolitics because it’s an unpredictable factor, like a rare bird flying around. The primary concern here is the Nasdaq and S&P500, which have never undergone a typical correction. If investors decide to buy blue-chip stocks now, there’s a possibility that Bitcoin could drop further.

Indirectly, someone questioned Powell about the possibility of a recession following interest rate reductions. His response was clear and straightforward: At this moment, there’s no indication or evidence suggesting a recession.

Conversely, following the Fed’s swift tightening phase, the typical maximum loss for the S&P 500 over the subsequent year stands at approximately -20.7%. On the other hand, when the Fed’s gradual tightening phase commences, the average maximum drawdown over the same period is about -7.4%.

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2024-09-19 14:32