Suddenly, after ignoring all the other warnings from the US about an imminent Russian attack on Ukraine, the market, on a Friday afternoon, after already going down due to high CPI and hawkish Fed talk, starts plunging. You get lots of hedging via put options going through (options volume was high), and now people are worried about World War 3. There is nothing like war to get people scared. You can't make this stuff up, the market is both inefficient and irrational because its ultimately controlled by a crowd of human beings. No matter how much the market has been controlled by the "algos", humans will always be the ones behind the controls turning on and turning off the algos.
A move down from SPX 4590 to 4490 wasn't enough to get investors to panic and buy puts and Treasuries, but a move from 4490 to 4400 on World War 3 fears was enough to get them a little panicky, and buying puts and Treasuries. Those are 2 ingredients that are important for any short term bottom: 1. Falling yields 2. High put volume
It doesn't hurt the bull case for the next few weeks now that war in Ukraine is now a concern. Ukraine chicken littles reducing equity exposure is a positive. The less weak hands there are, the less panic there will be when there is weakness. What does hurt the bull case is that the next month's CPI, ECB, and FOMC meetings are still a month away, which is a dark cloud of uncertainty hanging over this market.
Who knows, if Russia attacks Ukraine, Pansy Powell could delay a March rate hike, which would be bullish for stocks and bonds. We all know that throughout its history, the Fed uses any excuse it can to delay rate hikes, and to speed up rate cuts. So counterintuitively, Russia going to war with Ukraine could take the market's biggest worry off the table, which is aggressive Fed rate hikes.
The S&P has now soundly got rejected off of 4600 resistance the last 2 times up there. I doubt this market has the strength to get back up there in the next few weeks. But that doesn't mean this market can have a strong bounce off around strong support in the 4300-4350 zone. I put on a starter long position near the close on Friday, with plans on adding more today, on further weakness. Not looking for a huge up move, but a reflexive bounce up to 4500 is doable.
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Got out on the pop. Would be nice if we could get down to the low 4300's.
Added more SPX today. Now have a 3/4 position. Will hold into early next week or until 4500, which ever comes first.
Loaded up a few again. Getting trickier. At some point I do think we are going to rally back to ath. Do we do it now or do we go back down again? I guess we really are waiting for the march fomc.
On the daily it looks like a head and shoulders has formed. It could get pretty ugly if we do break below 4300. It would take us all the way back to the start of 2021 (3750-3800) another 15% and may fill the vix gap at 45. Do you think this scenario is likely to play out or is high inlfation likely to become acceptable. Japan could not print itself into high inlfation but I think you said the US money printing has been on a different level.
I don't believe technical patterns are reliable enough to trade off of. I just know that after such a long extended rally in 2021, the first major pullback is usually a buying opportunity, not a selling opportunity. The fundamentals are weakening, but I am seeing a lot of dark pool buying (DIX > 50 the last 3 days) and the crowd is quite bearish. Put/call ratios have been elevated for the last 4 weeks.
High inflation is only bad if the Fed over tightens because of it. And I don't think that's likely because the curve has already flattened quite a bit, and I don't see Powell hiking enough and ignoring an inverted yield curve. The Fed will find all kinds of excuses to cut short the hiking cycle, so inflation isn't the problem. Its the heavy overweighting of US stocks by investors everywhere, which makes if vulnerable to a long term bear market.
And yes, the US money printing is extreme, the greatest in recent history, by a mile, so there is a lot of excess liquidity, even with the Fed hiking cycle about to start.
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