Did you ever actually purchase the bullish argument touted by some to start out the brand new yr? Sure, it was an amusing fable that has now misplaced its luster because the bears are firmly again in cost as confirmed by the break beneath the 200 day transferring common for the S&P 500 (SPY). What occurs from right here? Steve Reitmeister shares his views within the new commentary beneath.
It isn’t uncommon for the brand new yr to start out bullish. Only a recent dose of optimism comes with flipping the calendar.
These good vibes are over!
Now extra traders are coming again round to the bearish premise that by no means actually went away. Add in a dose of issues concerning the well being of the monetary business and we lastly broke beneath the 200 day transferring common with odds of far more draw back on the way in which.
I’m right here to make sense of all of it on this week’s market commentary beneath…
Market Commentary
As they are saying an image is price a thousand phrases. So, let’s begin with the image of the S&P 500 (SPY) this previous yr together with the long run pattern line higher referred to as the 200 day transferring common (in crimson).
You possibly can see how very important the 200 day transferring common has been in framing the motion this previous yr. First being the bearish break beneath in April 2022 with many subsequent suckers’ rallies that failed as they approached this key degree.
Nevertheless, the bulls actually tried to make a convincing run of issues by lastly breaking above in January and staying above for practically two months. That occasion ended yesterday with the primary shut beneath the 200 day (3,941). And at present was a convincing comply with by means of session to the draw back.
Now the bears are firmly in cost as soon as once more. Let’s focus on why…
On Tuesday of this week Fed Chairman Powell reminded everyone why they need to rethink their bullish methods. In essence he acknowledged that given the info in hand that charges will doubtless must go larger than beforehand acknowledged…and keep in place for longer.
This led to a -1.5% unload on Tuesday. Only for readability, right here is the important thing quote from Powell so that you respect that there’s little room for misinterpretation.
“The method of getting inflation again all the way down to 2% has a protracted solution to go and is prone to be bumpy. As I discussed, the newest financial information have are available in stronger than anticipated, which means that the final word degree of rates of interest is prone to be larger than beforehand anticipated. If the totality of the information have been to point that quicker tightening is warranted, we might be ready to extend the tempo of price hikes.”
This reminds of us of the Feds intent to decrease demand…which is a elaborate manner of claiming prone to create a recession as a needed evil to tamp down the flames of inflation. Arduous to be bullish when the Sheriff of the economic system is placing up a roadblock to financial advance.
When you might have this clear message already in hand, then it turns into pointless to attend all the way in which for the Fed assembly on 3/22 to start out promoting. This notion was taken to the subsequent degree on Thursday with the primary break beneath the 200 day transferring common in fairly a while.
A lot of the funding media retailers acknowledged that the explanation for this downward strain is that extra folks have been getting spooked concerning the probability of employment report being too robust on Friday which might be a cherry on prime for additional Fed hawkishness.
That was a prescient transfer as certainly we discovered Friday at that US economic system added 311,000 jobs in February about 50% larger than expectations. Curiously, the month over month wage enhance was a notch decrease than anticipated at +0.2%.
Nevertheless, that could be a very risky indicator month over month. What actually issues is that with the unemployment price at file lows…and this many roles nonetheless being added…and with greater than 10 million job openings nonetheless being printed…then it’s a fairly good indicator of wage inflation doubtless being far too excessive sooner or later. This information had shares bolting decrease as soon as once more on Friday reconfirming the break beneath the 200 day transferring common.
Observe we now have made it this far and I’ve not but introduced up the Silicon Valley Financial institution scenario. Little doubt about it…this occasion can be a part of the latest unload as traders are haunted by “Ghosts of Monetary Disaster Previous“.
My early take is that that is an remoted incident and never an announcement of systemic monetary disaster as we endured in 2008. Nevertheless, there may be doubtless extra juice to squeeze from this story as traders will doubtless demand some type of stress testing of banks to insure confidence. That’s not a fast repair resolution and can doubtless solely add to draw back strain in coming weeks.
Trying forward there are extra fireworks set to go off in coming weeks similar to:
3/14 Client Value Index (CPI). The important thing being the month over month tempo to see if we’re heating up just like the February report…or cooling down like the last few months.
3/15 Producer Value Index (PPI). Insiders know that that is extra necessary than CPI as a result of the costs paid by producers at present results in the ultimate product and providers within the months forward. (Present PPI results in future CPI).
3/22 Fed Assembly with Curiosity Price Determination & Financial Projections. Final month was solely a 25 foundation level hike. Nevertheless, the chances makers at the moment are leaning to 50 factors this time round given Fed statements of needing to go even larger for longer.
I think these occasions will solely reconfirm the logic behind the latest break again beneath the 200 day transferring common.
The subsequent battle floor is 3,855 which is the official border of bear market territory representing a 20% drop from the all time excessive (4,818). The Friday shut of three,861 means we’re already knocking on the door.
Only for good measure lets speak about the potential for what lies beneath.
3,491 is the low made in October and prone to be retested.
3,180 would mark a 34% decline from the all time excessive which is the common decline throughout a bear market.
3,000 is some extent of significant, critical psychological resistance and onerous to think about going beneath except some at the moment unexpected disaster develops.
Placing it altogether, the bear market by no means left the scene. It simply light to the background for some time as bulls had some enjoyable in January and early February.
That occasion is over!
The subsequent factor to do is respect the sound logic behind the bearish argument and the way a lot draw back is probably going nonetheless on the way in which. That ought to compel you to enact methods which can be suited to a bear market setting. The subsequent part will make it easier to with that…
What To Do Subsequent?
Uncover my model new “Inventory Buying and selling Plan for 2023” overlaying:
- Why 2023 is a “Jekyll & Hyde” yr for shares
- How the Bear Market Comes Again with a Vengeance
- 9 Trades to Revenue Now as Bear Returns
- 2 Trades with 100%+ Upside Potential When New Bull Emerges
- And A lot Extra!
Inventory Buying and selling Plan for 2023 >
Wishing you a world of funding success!
Steve Reitmeister…however everybody calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Complete Return
SPY shares . Yr-to-date, SPY has gained 0.91%, versus a % rise within the benchmark S&P 500 index throughout the identical interval.
Concerning the Writer: Steve Reitmeister
Steve is best identified to the StockNews viewers as “Reity”. Not solely is he the CEO of the agency, however he additionally shares his 40 years of funding expertise within the Reitmeister Complete Return portfolio. Be taught extra about Reity’s background, together with hyperlinks to his most up-to-date articles and inventory picks.
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