Have you bought into the hype that others give you to start the new year? Yes, it was an interesting tale that has now lost its luster as the bears have returned strongly as evidenced by the break below the 200-day moving average for the S&P 500 (SPY). What happens from here? Steve Reitmeister shares his thoughts in a new commentary below.
It is not unusual for a new year to begin. A new level of hope comes with turning the calendar.
Those good vibes are gone!
Now more and more investors are back in the bearish positions they never left. Add in a level of concern about the health of the financial industry and we finally broke below the 200 day moving average with many bumps in the road.
I’m here to make sense of it all in this week’s market commentary below…
Market Reviews
As they say a picture is worth a thousand words. So, let’s start with a picture of the S&P 500 (OFFERS) over the past year plus a long-term line that is well-known as about 200 moving days (red).
You can see the importance of 200 flexible days in the production process of the last year. The first being the break below in April 2022 and the many meetings of breastfeeding babies that failed as they approached this important stage.
However, the cows really put in a convincing performance finishing their calving in January and staying on top for two months. That party ended yesterday with the first close under 200 days (3,941). And today was a satisfying follow through phase to the bottom.
Now the bears are in full control again. Let’s talk about why…
On Tuesday of this week Fed Chairman Powell reminded everyone why they need to rethink their policy. Instead he said that based on the information in his hands that prices are likely to go higher than previously forecast…and stay there for a long time.
This led to a -1.5% sell-off on Tuesday. Just to be clear, this is an important quote from Powell so you appreciate that there is little room for misinterpretation.
“The path to return inflation back to 2% has a long way and it can be difficult. As I said, the latest economic data has come stronger than expected, which shows that the final rate of interest is likely to be higher than previously expected. If the increase for the data shows that the rapid tightening is necessary, we will be ready to increase the inflation rate.”
This reminds people of the Feds wanting to lower demand… which is a fancy way of saying that it could lead to a recession as a key factor in deflating inflation. It’s hard to stay focused when the financial Sheriff is putting up a barrier to financial progress.
When you have this clear message already, then it is unnecessary to wait until the Fed meeting on 3/22 to start selling. This sentiment was raised to the next level on Thursday with the first break below the 200-day long-term moving average.
Many of the financial institutions said that the reason for this decline is that many people are worried that the job report will be too strong on Friday which would be the cherry on top of the Fed’s hawkish increase.
This was a smart move as we noted on Friday that the US economy added 311,000 jobs in February about 50% more than we expected. Interestingly, the increase in monthly wages was lower than expected at +0.2%.
However, this is a sign that does not change every month. The bottom line is that because the unemployment rate is down so much…and so many jobs are being added…and with over 10 million job openings still being published…that’s a very good sign of rising wages. be much higher in the future. The stock dropped further on Friday and confirmed a break above the 200-day moving average.
Note that we’ve made it this far and I haven’t covered Silicon Valley Bank. No doubt about it … this event is part of the recent sell-off where investors are concerned about “Ghosts of Past Financial Crisis“.
My initial observation is that this is an isolated incident and not indicative of a financial crisis like the one we endured in 2008. However, there is a lot of juice to be squeezed out of this story as investors may want to stress test the banks to confirm. confidence. This is not a quick fix and will only add to the stress in the coming weeks.
Looking ahead there are many fireworks that will take place in the coming weeks such as:
3/14 Consumer Price Index (CPI). The key is to go month by month to see if we’re hot like the February report… or cool like the last few months.
3/15 Producer Price Index (PPI). Participants know that this is more important than the CPI because the prices paid by producers today will end up in finished goods and services in the coming months. (Current PPI leads to future CPI).
3/22 Fed Meeting with Interest Rate Decision & Economic Outlook. Last month there was an increase of only 25 points. However, the oddsmakers are now leaning towards 50 basis points this time around given the Fed’s statement that they need to raise more in the long term.
I suspect that these developments will only confirm the sentiments that have recently taken place below the 200 day moving average.
The next battle point is 3,855 which is the legal limit of a bear market which represents a 20% drop from the all-time high (4,818). Friday’s close of 3,861 means we’re already knocking on the door.
For good measure let’s talk about the possibilities of what is below.
3,491 is the low made in October and should be retested.
3,180 may indicate a 34% drop from the all-time high which is the average low in a bear market.
3,000 is a very challenging point, mentally strong and it is difficult to imagine going below it unless some unexpected problem arises.
To be honest, the bear market has never gone away. It just faded into the background for a while as the cows enjoyed themselves in January and early February.
The party is over!
The next step is to appreciate the logic behind the bearish argument and the amount of downside that still exists. This should force you to set strategies for what should be a bear market. The next section will help you with this…
What Next?
Check out my new “2023 Stock Sales Plan” screen:
- Because 2023 is a “Jekyll & Hyde” year for stocks
- How a Bear Market Returns and Retaliates
- 9 Traders to Profit Now When the Bear Returns
- 2 Traders With 100%+ High Potential When A New Bull Comes Out
- And More!
I wish you a world of financial success!
Steve Reitmeister…
CEO, StockNews.com and Editor, Reitmeister Total Return
SPY company opinion. Year-to-date, SPY has gained 0.91%, versus a % rise in the S&P 500 index over the same period.
About the Author: Steve Reitmeister
Steve is better known to StockNews listeners as “Reity”. Not only is he the CEO of the company, but he also shares his 40 years of experience in the financial sector Reitmeister Total Return Profile. Learn more about Reity’s biography, as well as links to her most recent articles and selections.
A note Bears Strongly Back in Stock Market Rule Once Again! appeared for the first time StockNews.com