The rescue operation showed up overnight as the S&P 500 Index camped on the Weekly Expected Move low – approximately 4550 on the Futures and 455 on the SPY. And when all else fails, one can redraw the intermediate trendline to give it some benefit of the doubt at this level. All we can do is give it our best shot.
As with last month, the market is seemingly drawn into the monthly options expiration Friday. Why that has been a dip these last 6 -7 months has escaped me. I will look into it, but it has drawn us into the 50-day line over and over, and it has paid to buy the dip. This month, the 50-day line sits materially above us – so options expiration is a bit more negative.
And the WEM low also equates to the weekly 21 or mean line – a logical pivot point. And then there is the intermediate cycle – we are in the 15-week zone of a cycle running between 14 and 18 weeks since the March 2020 Covid low. We should expect a pivot soon.
Were it not for next week’s Fed meeting; you would have had a nanosecond to get positioned before takeoff. And that is interesting in and of itself. Not long ago, the prognosticators told us that the Fed couldn’t raise interest rates or the world would come to an end. Then they told us the Fed wouldn’t raise interest rates. Now, they tell us the Fed will make up for lost time because they are behind the curve and their “credibility” is at stake. They have had no credibility in my lifetime. I suspect “transitory” will join “irrational exuberance” (as in 2000) as the defining term of this era.
And when you have a stock market priced for perfection, the challenges abound. 7% consumer inflation and 10% wholesale inflation will show up somewhere. Either corporate profits will shrink – or consumers will stop buying at the higher prices. After all, the cure for higher prices is higher prices. Wages are not even close to keeping up. Inflated prices are their own natural governor.
Anyway, I don’t think there will be a sustainable upside until next week, but we will let the price action guide us. Yes, rates will go up, but they are still not going to be high by historical standards. The natural forces are working to abate inflation. For all we know, it could be peaking.
But the easy days of blindly buying dips are behind us. It would be nice if the market could hold the intermediate trend, but I still see a 50/50 chance of tagging the October low at 4268. The 200-day line (remember that?) is rising and sits around 4418.
And I am wondering if we will see a capitulation or spike low to end this corrective phase—something like the old days – where the market pukes before it recovers. The Fed meeting is a good crescendo point next week.
By the way, the Fed balance sheet shrank over the past week. So quantitative “tightening” is now real.
I think it is a bit too late to short unless you want to sit in front of the computer 24/7. So I am looking for a buy at this point.
Anyway, let’s see how the rescue operation goes today. Maybe we can do something towards the close.
In the meantime, oil prices are approaching new highs. That signals economic growth, not contraction. Gold is in a converging triangle – ready for a big move. It is just that I have not yet figured out the direction. I am working on it. Given the inflation at hand, one would expect a move north. But Gold has not exactly delivered as one might have expected up to this point. And higher interest rates on U.S. Treasuries provide stiff competition.
I will drop a line when and if something changes. Cash is king for now – but let’s see if we can get a characteristic intermediate low in the next week or so. We are not there yet by most measures.
Let’s see if the rescue operation follows through today.
A.F. Thornton