Market Overview Analysis by Michael Kramer covering: Nasdaq 100, S&P 500, DAX, iShares Core S&P 500 ETF. Read Michael Kramer's latest article on Investing.com
The S&P 500 clearly broke a key support level at 4,330 and never looked back. That was the bottom of the neckline for the head and shoulders pattern and/or the diamond reversal pattern. The move lower is pretty impulsive, which makes me believe we are in wave three down and not an ABC corrective wave.
This does help us in some ways because what comes next after this sell-off ends is a sideways or slight move higher for wave four and big impulse wave five down. The chart below doesn’t represent any “projections”; the numbers are there for illustrated purposes to give a sense of potential direction.At this point, it is clear that the market bet on the Fed cutting rates aggressively at the end of this year and the start of next year.
Bonds seemed to get it; that was clear from very early on. I think bonds underestimated how high the Fed would raise rates. Now that we know what the Fed is thinking about holding rates and that the neutral rate is potentially higher than 2.5%, rates on the back of the curve are adjusting for those higher rates.
Stocks bet on rates not staying higher for longer and lost. I have written about this many times. This is why I remained bearish even as the market rose, adding to my cash holdings over the summer. Now CTAs have turned sellers, and based on data from Goldman, could have $37 billion of S&P 500 to sell in a down tape over the next week. This means that this is no longer just a rising rate sell-off. We have the CTAs now selling, which will add another layer of complexity. At this point, It seems like the path of least resistance for the SPX is lower.
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