Technically Speaking – April

May 10, 2022

Long Term Resistance: SP500 4320 then 4550 then 4780

Long Term Support: SP500   4000 then 3800

Market volatility has increased as expected. The last week of April was the most volatile I have seen in years which is normally a bottoming action. We have broken previous support and found new support at a lower level. This pattern needs to be reverse. I believe 4000 to 4050 should hold but if the SP breaks that level expect a move to 3800 to 3900 and that will be a good buying opportunity. The risks in the markets are being caused by fear. Investors are concerned the Federal reserve has not fought inflation fast enough which is a valid argument. Powell was very political with discussing inflation as transitory so he could keep interest rates low. He is now communicating a rapid rise in rates to combat inflation and has thrown out data dependency in lieu of raising rates. This action has caused a bear market in the beloved Nasdaq stocks and a 14% move down in the SP500.  It is my belief once the signs of inflation start to wain the FED will start using the term Data Dependent again. This should allow investors to feel comfortable enough to buy again knowing there will be a reason behind higher rates and not just because they are being the eight ball on inflation.

Market declines like this are normal over the course of market rallies. The SP500 falls on the average of 14% and the declines last for about 4 months. Looking at the current decline and time frame, statically we are closer to the end of the decline than the start of a bigger decline. In my opinion the potential reward is getting greater than the risks.

My longer time frame suggests a crash is not immediate, especially since the FED and ECB are still buying and I do believe we will be higher later in the year. However, as the FED and ECB end their stimulus buying and allow the balance sheets to run off, the markets will become vulnerable to a recession and a much bigger decline. The FED has a chance to do things right and get us at least a bumpy landing, but my concerns lie with the current administration pandering to the progressives and giving away money and increasing our debt to NO return.

 

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