The bulls remain in control of the market, but the risk to the bullish view remains a challenge for the rest of this year. Despite the Federal Reserve's reluctance to change its monetary policy, we talked about the bullish signs the market was displaying on January 27th. Last week’s message, however, triggered a sell signal for the first time since early December. This week’s analysis remains vital as our primary short-term “sell” indicator has been triggered.
SimpleVisor.com has provided the chart below, which features our exclusive money-flow indicator and the Moving Average Convergence Divergence (MACD) signal. Notably, our previous analysis remains crucial as there are currently multiple levels of vital support for the S&P 500. Should the market break through all the supports, that could mean the “bear market” persists and the rally from October's lows was another “head fake.”
Everyone betting on the same side of the trade creates excesses, which is beneficial to contrarian investors. When January 2022 arrived, optimism was very high in the market, and nobody anticipated a drop of 20%. Sam Stovall, the investment strategist for Standard & Poor’s, once stated: “I-Bear: secular inflation (= higher rates & volatility) + end of era of QE (Fed bought $7.5tn since Lehman) + end of era of US buybacks (corporations bought $7.7tn since Lehman). I-Bull: that script changes if a hard landing in wages occurs before a hard landing in economy, if post-pandemic world reverts to bullish secular stagnation of past 15 years. I-Wrong: inflation shock caused rates shock & Wall St shock but thus far is yet to cause recession shock; lag from easy monetary policy (through Wall St) into economy was instant in 2020; lag from tighter monetary policy has been much, much longer past 12 months; that’s because recessions are caused by re-financings & redundancies, and neither happening.”
The most important part is the last one. At the first sign of recession, it is expected that the Federal Reserve will lower rates and politicians will act quickly by providing stimulus checks, rebates, and debt forgiveness.
0. “The Correction May Have Started, Will Bulls Remain In Control?” Real Investment Advice, 14 Feb. 2023, https://realinvestmentadvice.com/the-correction-has-started-but-will-the-bulls-remain-in-control
1. “Bullish Signals. Bearish Outlooks. – RIA” Real Investment Advice, 11 Feb. 2023, https://realinvestmentadvice.com/bullish-signals-bearish-outlooks/
2. “Bulls Versus Economic Data That Says Fed Is Not Done – RIA” Real Investment Advice, 18 Feb. 2023, https://realinvestmentadvice.com/bulls-versus-economic-data-that-says-fed-is-not-done/
3. “The Correction May Have Started, Will Bulls Remain In Control?” Seeking Alpha, 15 Feb. 2023, https://seekingalpha.com/article/4578356-the-correction-may-have-started-will-bulls-remain-in-control
4. “Here's what needs to happen for one of Wall Street's biggest bears to flip bullish and be won over by the stoc” Business Insider India, 12 Feb. 2023, https://www.businessinsider.in/stock-market/news/heres-what-needs-to-happen-for-one-of-wall-streets-biggest-bears-to-flip-bullish-and-be-won-over-by-the-stock-market/articleshow/97844035.cms