SPX Update: Next Target Captured

Last update opined that the market should continue to trend higher, with SPX probably headed toward the next target/inflection zone of 4485-4505, and that zone was captured and exceeded yesterday.  

Bears trying to understand this rally from a rational perspective might want to consider that we're currently in corporate tax season, and the Treasury typically uses the windfall to pay down T-bills.  Further, they don't need to hold massive Treasury auctions, which means there's more money available for Primary Dealers to pump into stocks.  That may change in the immediate upcoming weeks (which could provide our larger fourth wave; see second chart), but then there's another windfall near the middle of April (which could provide the fifth wave), when individual tax receipts pour in. 

Additionally, even if the market has turned into a bear, it's pretty common for bulls to get a general retest of the previous all-time-high before the next decline gets rolling for real.  This is hardly uncharted territory.

Further, the charts were hinting for weeks that a big C-wave rally was a distinct possibility.  As to where we are in that rally (assuming that's what this is -- and it's behaving like it is, so far):

I backed out a bit on the chart to help illustrate this in more detail below:

In conclusion, there are a couple of oddball patterns that could derail the "big C wave," but unless we see more evidence for those patterns, we'll presume SPX is at least headed for 3/c on the chart above (which will be a more significant inflection), with a reasonable shot at the larger blue 5 and C (preliminary target for that pattern remains 4717+/-).  Trade safe.

The Fed Makes Its Case for a Bear Market

Since December, I've been arguing the case for a bear market via charts.  Today, let's look beyond the charts.

On a superficial level, the case for a bear market is now becoming apparent to more and more people:  Quite simply, the Fed has signaled that it is going to meet inflation aggressively, with Powell repeatedly making hawkish statements on Wednesday.  In fact, he went out of his way to overstate (some might say "exaggerate") the strength of the labor market.  Here's one of several examples:

"Labor demand is very strong, and while labor force participation has increased somewhat, labor supply remains subdued. As a result, employers are having difficulties filling job openings, and wages are rising at their fastest pace in many years.  FOMC participants expect the labor market to remain strong, with the median projection for the unemployment rate declining to 3.5 percent by the end of this year and remaining near that level thereafter."

Pretty strong language -- and he reiterated this view multiple times during the Q&A portion, so it's clear he's trying to focus on factors (beyond inflation) that can act as justification for rate hikes.  Further:

"We know that the best thing we can do to support a strong labor market is to promote a long expansion, and that is only possible in an environment of price stability. As we emphasize in our policy statement, with appropriate firming in the stance of monetary policy, we expect inflation to return to 2 percent while the labor market remains strong. That said, inflation is likely to take longer to return to our price stability goal than previously expected. The median inflation projection of FOMC participants is 4.3 percent this year and falls to 2.7 percent next year and 2.3 percent in 2024; this trajectory is notably higher than projected in December, and participants continue to see risks as weighted to the upside."

So Powell is stating quite clearly that, to quote the man himself, "the committee is committed" to raising rates and attempting to tame inflation -- and the FOMC believes that the economy can handle it just fine (they always believe this).  

Bulls hoping for last-minute wavering by the Fed aren't taking Powell's words to heart.  Powell has quite clearly stated that the free money party is ending.  But it's been so long that many investors may have forgotten that the old market wisdom of "don't fight the Fed" cuts both ways.  

For the first time in a while, the Fed is explicitly warning that they will no longer be backstopping the bulls.

It's also worth mention here that some firms are anticipating upwards of 7 rate increases for 2022 (Goldman Sachs).  The last time we saw that many rate hikes in a single year was 2005 (which saw, if memory serves, 8).  Of course, QE didn't even exist in 2005, so there was no concurrent taper to create additional market pressure along with those rate hikes -- and although stocks traded sideways-up through 2005, we know where it all eventually led.

History may not always repeat, but it often rhymes.

In any case, the point is, the Fed has signaled that it intends to act, and the market is ignoring that for now -- as we suspected it might, based on the potential of a large C-wave rally.  We do have 13 years of conditioning for the market to typically rally on the Fed, and short-covering rallies can be funny and powerful things.

Moving on to the charts, SPX broke above 4416, so this (as I noted last week) indicates that the rally likely still has even farther to go, with the next inflection coming near 4485 -- and beyond that, potentially into the 4700s, so bears may want to continue to show patience.  We are most likely in 3 of C right now, so presumably this pattern will need a fourth wave correction, then a fifth wave up, before there's much potential for a more serious reversal (again, barring some intermezzo patterns that we'll discuss in more detail if it becomes appropriate).

Bigger picture, the most bullish case would be to revisit the very long term upper-black trend line -- but even then, I would remain long-term bearish unless SPX could sustain a breakout there.

I also wanted to call attention to a comparison of SPX and oil, because recently these two markets in tandem have reminded me of 2007-2008:

Does the above chart mean anything?  Don't know.  But being that I was a heavily-active trader during the 2007-09 bear, the similarity has been on my mind lately.

In conclusion, we should probably expect SPX to at least continue toward the next inflection zone (around 4485), where there are some oddball patterns that could come into play.  If it clears the next inflection zone, then bears may want to continue to show patience, as the potential that we're in a larger C-wave is still very much alive.  Trade safe.

SPX Update

Last update highlighted the next near-term resistance zones, and on Wednesday, SPX rallied up to the first highlighted zone, then reversed.  It did clear that zone on the second try and yesterday, it appropriately rallied into the second zone.  I have added a highlight for the third zone, which also represents the inflection zone (give or take a bit) of an optional intermezzo move, which I'll discuss if it becomes appropriate.

Do note that it's not yet a given that SPX will be able to sustain a breakout over 4416, as there is potential intermediate resistance here:

In conclusion, the near-term zones posted on Wednesday worked well enough.  SPX's next task is to try to clear the intermediate blue trend line, which could, in theory, put up a fight.  We'll see how today's session goes and have another look on Monday.  Trade safe.

SPX Update: Fed Day

The market continues to move around within its recently established trading range, which has kept open both options we've previously discussed.  I've added some additional details to the familiar chart below:

Today is a Fed day, so the market is hoping the Fed comes out and says something akin to, "In light of recent geopolitical tensions and blah blah blah, we've decided to only raise rates by one millionth of a basis point to help fight inflation.  Ha ha ha.  Party on, dudes!"  And I suppose anything is possible with these [note: remember to insert more polite synonym for "clowns" here before publication!]

I should also add that, given the complex nature of the ES/SPX lows, there is at least an option for a drop back to the Feb. lows, followed by a rally back up toward 4300, followed by the "real" drop.  Just something to be aware of.

In conclusion, beyond that note, still no change to the recent chart picture, but I have included some additional zones of interest.  Trade safe.

SPX, INDU, NYA: Answers We May Not Want, to Questions We Haven't Asked

The market has remained stalled for the past couple sessions, seemingly waiting on the Fed this week.  Though what it expects the Fed to do at this point is unclear, old habits die hard.

Accordingly, near term options remain on the table as recently discussed.  Bulls are hoping for a C-wave relief rally, while bears are probably hoping for the same.  

Since everyone is probably hoping for the same outcome here, we should not ignore the possibility that it may not materialize.  On the chart above, it shows wave "5?" -- but be aware that said wave would probably be wave 5 of a larger wave 3, and that sometimes means an extended fifth wave.  As the chart below shows, any sustained breakdowns should be taken very seriously:

Bigger picture, the bear case hasn't changed, though I have included some ballpark numbers on the chart below.  The question I always ask myself in parallel with such numbers is, "What would have to happen to take SPX to [for example] 2200?  What is going on in the world as the market falls?"  Because we have to remember, especially when dealing with Supercycles, that these things do not occur in a vacuum.  If the market crashes, there are things going on outside the market that will be "causing" the crash.

And when it comes to Supercycles, those events can be truly dramatic, as I've often discussed in the forum.  During a Supercycle crash, the door is open to events such as major natural disasters ("big one" earthquakes, Cascasdia Subduction Zone tsunamis, etc.), world wars (or even something at a smaller scale but still massively devastating, such as a "backpack nuke" brought up through our less-than-secure borders and detonated downtown in a major US city), comet impacts -- things of that nature.  Things that we tend to blindly assume can't happen in modern times, but most assuredly still do.

Those types of events can, and usually do, run in close proximity to Supercycle crashes.

Anyway, I don't mean to sound melodramatic, but when we start asking ourselves the question ("What could be happening in the world to cause the market to react so negatively?"), we probably won't like the possible answers.  As I've always said:  Charts lead the news.

And finally, a chart that still contains at least a sliver of hope for the bulls:

In conclusion, bulls and bears are still hoping for a C-wave bounce off the low here, and there's still a reasonable chance we'll get one.  But if we don't, then be very cautious if the market sustains breakdowns at the noted levels.  In the meantime, we'll see if the market keeps waiting until the Fed does its thing.  Trade safe.

SPX Update

The near term continues to be less than ideal for traders, with SPX stubbornly refusing to resolve itself.  Both recently discussed near-term options thus remain on the table, with bulls still keeping hope alive for at least a relief rally:

Investor sentiment has reached extremes in terms of the recent bull market, and maybe that will help generate a bounce -- but keep in mind that if the market has become a bear, then (whether this indicator works here or not), indicators that worked during the ~13 year bull market will begin to fail, and will eventually fail spectacularly.

In conclusion, bulls have kept hope alive for at least a near-term relief rally, but no resolution so far, so bears aren't out of the near-term game just yet (bigger picture, they will remain very much in the game, even if SPX rallies up toward 4717).  Trade safe.

Brief SPX Update

Last update noted:

I suspect we may finally get some near-term resolution in the next couple of sessions -- the market just has that feel to it right now.

And the market obliged, but the potential counts remain the same for now, so still not much to add:

 Other than that, still not much to add.  Trade safe.