Have you really embraced the bullish argument some people hype up to kick off the new year? Yes, bearish as evidenced by the S&P 500 (SPY) below its 200-day moving average. It was an amusing fable that had now lost its luster, as the was firmly back. Where do we go from here? Steve Reitmeister shares his take on the new commentary below.
A strong start to the new year is not uncommon. Flipping the calendar creates a new optimism.
Those good vibes are over!
Now more investors are returning to the bearish premise that never really went away. Concerns about the health of the financial industry have also been added, eventually pushing him below the 200-day moving average, with further declines possible.
We’re here to make sense of it all in this week’s market commentary below…
As they say, a picture is worth a thousand words. Let’s start with the S&P 500 chart (spy) over the past year including the long-term trend line, better known as the 200-day moving average (red).
You can see how important the 200-day moving average has been in structuring the movement over the past year. First he was a bearish break in April 2022 and many subsequent rallying of suckers failed as he approached this critical level.
However, the bulls finally tried to break out in January and make a convincing move by holding the top for almost two months. That party ended yesterday with the first close below 200 days (3,941). And today was a persuasive follow-through session to the downside.
Now the bear is firmly in charge again. Let’s discuss why…
On Tuesday, Fed Chairman Jerome Powell reminded everyone why they should reconsider their bullish tactics. In essence, he said, given the facts at hand, interest rates are likely to be higher than previously stated…and stay in place longer.
This caused a -1.5% sell-off on Tuesday. For clarity, Powell’s key quotes are included here, so you can understand that there is little room for misinterpretation.
“The process of returning inflation back to 2% will likely be a long road and bumpy. “If the data as a whole shows that a faster tightening is warranted, we are ready to accelerate the pace of rate hikes.”
This reminds people that the Federal Reserve intends to bring down demand…which will likely trigger a recession as a necessary evil to quench the inflationary flames. It’s a fancy way of saying it. It’s hard to be bullish when economic sheriffs are putting obstacles on economic progress.
With this clear message in hand, we don’t have to wait all the way until the selling starts at the Fed’s meeting on March 22nd. This notion was taken to the next level on Thursday with the first break below the 200-day moving average for a significant amount of time.
Most investment media outlets say the reason for this downward pressure is that more people are worried that Friday’s jobs report may be too strong.
It’s a far-sighted move, as we learned on Friday that the US economy added 311,000 jobs in February, about 50% more than expected. Interestingly, wage growth was slightly below expectations at +0.2% m/m.
However, this is a very volatile metric month to month. What really matters is that unemployment is at a record low…and so many more jobs are still being added…and over 10 million jobs still open has been…and it’s a pretty good indicator of the potential for wage inflation…too high in the future. The news reaffirmed that stocks fell again on Friday, breaking below the 200-day moving average.
Note that we’ve come this far, but we haven’t yet brought up the Silicon Valley Bank situation. There is no doubt… this event will be a great opportunity for investors to “Ghosts of past financial crises”.
My initial view is that this is an isolated incident, not a statement of a systemic financial crisis like we had in 2008. But investors are likely to demand some sort of stress test from banks to guarantee, so there could be more juice that can be squeezed out of this story. confidence. This is not a quick fix and will only add to the downside pressure in the coming weeks.
In the coming weeks, the following fireworks will be launched:
3/14 Consumer Price Index (CPI). The key is the monthly pacing to see if it’s going up like the February report or down like it’s been in the past few months.
3/15 Producer Price Index (PPI). Insiders know this is more important than CPI. Because the prices producers pay today will translate into the final products and services months from now. (His PPI now leads to his CPI in the future).
3/22 Fed meeting on interest rate decisions and economic forecasts. Last month it was up just 25 basis points. However, oddsmakers have made statements that the Fed needs to go higher over the long term, and this time he’s leaning towards 50 points.
I think these events just reaffirm the logic behind the recent break below the 200-day moving average.
The next hotspot is 3,855, the official bear market boundary, down 20% from the previous high (4,818). Friday’s close of 3,861 means there’s already a knock on the door.
Just in case, let’s talk about the possibilities underneath.
3,491 is the October low and may be retested.
3,180 marks a 34% drop from the all-time high, the average drop in a bear market.
3,000 is a very serious psychological resistance point, and it’s hard to imagine going below it unless there’s an unanticipated crisis right now.
Overall, the bear market never went away. It faded into the background for a while as the bulls were having fun in January and early February.
That party is over!
The next thing to do is understand the sound logic behind the bearish arguments and how much downside is still going on. I have. The next section describes it…
discover my brand new ‘2023 stock trading plan“cover:
- why 2023 “Jekyll & Hyde” stock year
- How the bear market will revive
- 9 deals the bears are back and profitable right now
- 2 More than 100% chance of trading when a new bull appears
Good luck with your investment!
Steve Lightmeister…but everyone calls me Reity (pronounced “Righty”).
CEO, StockNews.com, and Editor, Lightmeister Total Return
spy stock. Year-to-date, SPY is up 0.91% 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.
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