The rate hike cycle of 2026 has officially begun. Kevin Warsh said “the plain fact is that inflation is too high and has been for too long.” The Fed increased rates by 25 bps, which was a surprise to literally no one. When there’s a 90%+ chance of a hike, it’s for sure happening. That’s not a guess or an online betting market, it’s the Fed funds futures market and bonds dictating where things are going.
The market reacted slightly more than many expected, mostly due to the tone of Warsh’s speech and the fact that the dot plots show more hikes on the horizon. The odds of another hike this year just went up to 83%, which, since we’re still far out from the next two FOMC meetings, isn’t a certainty, but the market is clearly assuming more hikes are coming.
This is the first hike we’ve seen since 2023 and begins a whole new rate hiking regime. If you want to know what the market does when we start a new hiking regime, check out the video I made on the topic.
The TLDW: history tells us the market sells off in the first 60 days after the hike, which leads to a pretty solid buying opportunity. This would line up with midterm year seasonality quite nicely. A choppy, semi bearish move lower to shake out some of the leverage and remove some froth into October would set up the perfect end of year rally.
Right now QQQ is under the 100-day SMA and starting to get comfortable down there. I’ll be the first to admit we often don’t get any real moves until a few days after the FOMC meeting, so if we do start to break back above the 100-day SMA on QQQ, that would be a decent short term trade, targeting that elusive gap at $729. If it instead breaks below $701.59, which it did wick below on Wednesday, finally filling the gap, that would be a warning sign we’re heading lower, which as mentioned above would set up some really solid buying opportunities.
QQQ Daily Chart
SPY held the 100-day SMA, coming within pennies of touching it on Wednesday after closing with a decent lower wick. As long as SPY holds the 100-day SMA, there’s a decent chance of a post hike bounce like we saw in 2022 and 1999 before eventually dropping. If SPY breaks below the 100-day SMA, the next real solid support shows up at the 200-day SMA around $715 to $720.
SPY Daily Chart
Sector Watch & Relative Strength
There’s certainly some weakness out there right now in tech, but also in banking, consumer defensive and consumer cyclical names like COST, HD and MCD. The strongest two sectors I’m finding are cybersecurity and oil refining.
Oil refiners like MPC, PSX, VLO, DINO and SHEL continue to lead and push higher day after day. VLO pulled back this week once again into the 8-EMA on the daily chart, an average it’s been riding higher off of for the last month. Buying off that average or the 21-EMA, both popular momentum averages, has been a super solid setup. I pointed out VLO on September 4th to the RLT Swing Trade community when it was dropping into the 8-EMA, and it’s done it again this week. At some point the momentum on these names will shift, but in the meantime, the trend is your friend.
VLO Daily Chart
Same goes for cybersecurity. With fears of AI ramping higher, cyber names become even more important. CRWD, PANW, FTNT and NET are the big names I watch, but OKTA has been crushing it higher and ZS is trying to break out of a massive base. I’m watching this one very closely.
We had the highest volume candle on the monthly chart back in May, with a massive upper wick. That wick came from the May earnings gap down, when huge bear volume came in and was almost immediately trapped as ZS moved higher. ZS is also trying to close above the 200-week SMA for the first time since early February 2026, when it broke down. It’s bouncing off the 100-month SMA and has a double bottom on the weekly chart.
Overall, dips are buyable as long as it holds its 100-month SMA, 200-day SMA and 100-day SMA. If it breaks out from here, that’s also a level worth watching, although breakouts in this market have been pretty trappy and tend not to follow through.
ZS Daily Chart
Can’t wait for that elusive dip. 95 percent cash