Powells Punch

25 April 2022 By PDSNET

In November last year we wrote the following about the U.S. economy in the Confidential Report:

…what if the Fed is wrong about inflation and it persists at the current high levels or even increases? September was the 5th month where inflation was above 5%. If they are wrong, then they will need to raise interest rates more rapidly. We think that this scenario…will result in a major correction fairly soon.”

That report was published on 3rd November 2021 when the S&P500 index had just made a new record high at 4660. In the same report we said of the predicted correction:

…we believe that it will be a fall of between 460 points (10%) and 920 points (20%). A 20% fall will take the index back to its lower channel line at around 3680”.

Now that scenario which we warned of is coming to pass with a vengeance. US inflation in March 2022 hit an incredible 8,5% - a massive increase from the previous month’s 7,9% and way above the 5% levels seen immediately before September 2021.

This has now prompted the new Federal Reserve Bank (the Fed) chairman, Jerome Powell, to warn of a 50 basis point hike in interest rates at the May meeting of the US monetary policy committee (MPC). At the same time the Fed is reversing its policy of quantitative easing (Q/E) by reducing the size of its balance sheet at the rate of $95bn a month, known as quantitative tightening (Q/T). 

This shift in monetary policy is very dramatic - and clearly overdue. As you would expect it is having a significant negative impact on share prices, especially tech shares, with the S&P falling by a total of 5% in the last two days of last week. The critical question now is:

Is this still just a correction or the beginning of a bear trend?   

There can be little doubt that the Fed has foolishly allowed the inflation genie out of the bottle and it is going to require an extreme effort to put it back. But, at the same time, the US economy is booming with record low unemployment and massive profits being reported by listed companies.

For example, the Tesla results for the 1st quarter of 2022 beat analysts’ expectations by a massive 42,5% with earnings per share of 322c (US). The company made sales of $18,76bn in that single quarter.

At the same time the US economy created 431 000 new jobs in March 2022 and the unemployment rate fell to an amazing 3,6%.

We are almost certain that good news flowing through from the economy added to S&P500 companies’ quarterly results will soon displace the current negativity on interest rates and the S&P will resume its upward trend. In fact, we have predicted that the S&P could potentially reach a new record high by the end of June 2022.

From a technical perspective the correction in the S&P now looks like this:

S&P500 Index: September 2021 - April 2022. Chart by ShareFriend Pro.

You can see that, until Powell’s shock announcement two trading days ago, the S&P was busy recovering from its “double bottom” low at 4170 on the 8th of March 2022 and 4173 made on the 14th March 2022.

With the unexpected downward move of the last two days, we must now consider whether the low of 4170 will be broken. We think not. In fact, we believe that markets have over-reacted to Powell’s words and will probably stage a recovery this week.

What is interesting though is how completely the markets’ attention has been diverted away from the war in Ukraine. In last month’s Confidential Report, published on the 6th of April 2022, we said the following:

…the impact of the Ukraine invasion on world markets is fading fairly rapidly. The oil price is falling back, and financial markets are turning their attention elsewhere”.

While there remains the possibility that Putin will come up with some new and unexpected strategy, it seems more probable to us that both he and Russia are operating at the edge of what they are capable. They are now facing an experienced, well-armed and highly motivated force – while their demotivated army is being supported by an economy that is being systematically destroyed.

So, what this boils down to from a private investor’s perspective is that the correction remains a buying opportunity. Having said that, we should remind you to always maintain and stick to your stop-loss strategy.


All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

Share this article:


The Anatomy of the Bear

As the bear market unfolds on Wall Street you either hold shares or you are sitting in cash. For those who are holding shares, as we have said consistently, you need to watch your stop-loss levels very closely because you are operating in a market where the odds are decidedly against you.

For those in cash, your position is

Bear Trend

We never regarded the COVID-19 fall of the S&P500 in March 2020 as a bear trend. In our view it was always a technical aberration caused by the “black swan” event of the pandemic. It caused a temporary downward spike which lasted from February to August 2020, but it was never a true bear market.

Then on Monday

Uncharted Territory

The world has entered a turbulent time, the outcome of which will largely determine the future order of things. There are six great areas of uncertainty which the private investor should formulate a coherent opinion on:


  • The war in Ukraine is in reality the remnants of the cold war, a low-level conflict

Triple bottoms

Investors should be riveted to the progress of the S&P500 index these days. As we said in our article three weeks ago, the S&P is teetering on the edge of a bear trend. Following that article, the index climbed back up and then on the US Memorial Day weekend it encountered significant

Basic Fundamentals

Public, listed companies are required to report back to their shareholders on a regular basis. They must produce audited financial statements after the first six months of their financial year (interims) and then again at the end of the financial year (finals). Listed companies must produce these statements within 3 months of the end of their

Teetering on the Edge

Last Friday, the S&P500 actually dipped into bear market territory during the trading day. It went as low as 3811.28 before staging a remarkable recovery in afternoon trade to close at 3901.36. This resulted in Friday’s candle becoming what is known as a “hammer” – a candle with a very short body and a long downward

Bitcoin versus Gold

Cryptocurrencies cannot really be considered an investment because they have no fundamentals. Their value is derived exclusively from the belief of the people who invest in them. When belief in Bitcoin is strong the price rises and when it is weak, the price falls.

Bitcoin cannot be regarded as a “safe haven” asset


Most investors would probably agree that there is a considerable amount of uncertainty in equity markets at the moment. From a fundamental perspective, that uncertainty has come about because of:

  1. The force with which the central banks of the world (especially the US Fed) will “stamp on the brakes” to reduce


Nineteen months ago on 2nd of September 2020 in the Confidential Report, we recommended buying Lewis shares when they were trading for just 1668c. The share has now moved up to 4670c – a gain of 180%. Amazingly, it remains excellent value today despite this substantial rise in its price.

The company has 817 stores with 84%

Linear vs Semi Log

Most charts of share prices or indexes that you will come across are linear. The date is measured on X-Axis (horizontal) and the price or index level is measured on the Y-Axis (vertical). For short term charts linear scales are fine, but the longer your chart, the more misleading a linear chart becomes, especially for data streams which generally increase over