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The battleline is set between bullish and bearish at the 200-day moving average of the S&P 500 (SPY). Below 3,940, a serious FOMO rally could be on the downside. Why can it happen? And how do you best position your portfolio for profit? 40-year investment pro Steve Reitmeister explains it all in the following article.
The stock nearly broke below the 200-day moving average (3,940) on Friday. From there the S&P 500 (spy) slightly bounced to the finish line at 3,970.
Bears still can’t declare victory… neither can bulls.
This means the war for the soul of the stock market is yet to come. My money is riding a downward break… but something crazier has happened. Let’s.
Market commentary
I love the headlines on CNBC Friday.
“Dow falls more than 400 points as hot inflation report rocks Wall Street“
Let me introduce a more playful paraphrased version.
“White-headed investors finally realize inflation is too hot”
I almost got the written commentary on Carpel Tunnel Syndrome after commentary on all the obvious clues about high inflation and the very hawkish Fed intentions. my post on wednesday Describes three high and tight strikes that knock the bull off the plate.
Still obviously, some investors had to see 4th A strike thrown today to get the message that the year’s bullish start was a mirage.
It far exceeds expectations. And if the Fed continues on this trajectory while targeting 2%, it will show inflation at an annual rate of 7%.
So let’s tie this in with the rest of this week’s news and point out why investors are right to go for the hills.
Fed meeting minutes were provided on Wednesday that prompted investors to hit the sell button again. This is because those who didn’t vote for the 25 point raise actually wanted his 50 points which is more hawkish.
No doubt outspoken Fed President Bullard was calling for rate hikes. Insights gained in this articleHis view is to keep interest rates much higher and much faster to quench inflation more quickly and then press a moratorium for an extended period of time.
There is no way to read these fresh Fed signals and the recent signs of inflation are still too high to assess a bullish false start to the year. , that rise is premature…leading the Fed to maintain restrictive hawkish policies for much longer than expected.This will only increase the likelihood of an extended recession and bear market.
Before claiming a win for the bears, we need to speak frankly about the following bullish indicators. That’s some modest sign of recent economic improvement. Or, at least, not as terrible as some recent readings.
Looking back on Tuesday PMI Bulletin A slight return to the previously poor 46.8 to 50.2 expansion zone. This was primarily due to improved performance in the services sector. But manufacturing continues to look great for the week at 47.8 when 49 was forecast.
Then on Thursday Chicago Fed National Activity Index Bounced from -0.46% to +0.23%. This is his strongest reading since July for this broader economic indicator.
Before you cheer me up, please consider that the creators of this index warn against reading too much into the monthly report. Instead, we recommend looking at the 3-month moving average, which smoothes the results. There you can see that the reading is still negative at -0.10.
So which is more important… marginally better economic news… or a troubling sign of still-sticky inflation that keeps the Fed on its hawkish trajectory?
Both are interesting, but clearly inflation and the focus on the Fed are driving the market. that their goal is todecrease in demandTo bring inflation down to the target of 2%. Declining demand is just a fancy term for slowing an economy that actually risks recession.
This brings us back to the equation we discussed a few weeks ago. I’ll modify it slightly for today’s discussion.
Ongoing higher rate (5%+)
+
Higher rates will apply until at least the end of 2023
+
6-12 months delayed economic impact
+
already weak economic data
=
Fertile soil triggers recessions, prolonging bear markets and lowering lows.
Overall, the bears have been struggling to regain control of price action since the market hit highs in early February. This his 5% drop in the S&P 500 goes hand in hand with a clear rotation in favor of his group of risk-offs such as Consumer Defensive, Utilities and Healthcare.
A bull is as stubborn as a bear. And there’s no doubt they had a blast in his January.
But a sharp break below the all-important 200-day moving average of the S&P 500 (SPY) at 3,940 will see some serious FOMO downside as more investors hit the sell button en masse. I guess.
If you’ve already built a portfolio to survive a bear market, you’re ready to go.
If not, we hope this commentary has inspired you to consider a suitable approach for the potential for further declines in the future.
what next?
my brand new2023 stock trading plan” cover:
- why 2023 “Jekyll & Hyde” stock year
- How the bear market will revive
- 9 trades to profit right now
- 2 More than 100% chance of trading when a new bull appears
- etc!
Good luck with your investment!
Steve Lightmeister…but everyone calls me Reity (pronounced “Righty”).
CEO, StockNews.com, and Editor, Lightmeister Total Return
SPY shares were unchanged in after-hours trading on Friday. Year-to-date, SPY is up 3.65% on him, while the benchmark S&P 500 index gained 10% over the same period.
About the Author: Steve Lightmeister
Steve is better known to StockNews audiences as “Reity”. Not only is he the company’s CEO, he shares 40 years of investment experience. Lightmeister Total Return PortfolioFind out more about Reity’s background, links to our latest articles, and more on stocks here.
post Prepare for a bearish breakout! first appeared StockNews.com