Last week, there was a major decline in many of the major stock indexes. In fact, the S&P 500 Index (SPY) closed below its important 50-day moving average. This was the first time since March 4th, 2021 that the S&P 500 Index closed below this key moving average. Today, the major stock indexes are bouncing and the S&P 500 Index is now back above the important 50-day moving average. Key levels will often get tested, but it is really the pattern that develops above or below these levels that really matter. 

Last Friday was options expiration for the month of June. It was also a quadruple witching options expiration which often adds to the institutional game playing that takes place every month. Often, the moves in the markets that take place during an options expiration trading week are false moves and exaggerated. In other words, we will need to see the pattern that the charts form this week to really make a whole lot out of last week’s action. 

We now know that the Federal Reserve understands that inflation is running hot. They have been telling investors that it is transitory for several months now, but it seems as if the investor crowd is not buying that story any longer. The Fed basically said that it will take several meetings before they will look to taper their $120 billion of monthly asset purchases. Ironically, the mere mention of a taper by several Federal Reserve members caused a taper tantrum. Later today, President Biden will be meeting with Federal Reserve Chairman Jay Powell. Either way, the central bank will have some tough choices to make over the next few months. This second half of the year will be a very important time for the markets.