While I was asleep last night DOW futures plunged 500 points as heavy selling hit Asia and Europe. As I write this at 6:00 AM EST they are up a little and there is talk of buying tech stocks ahead of Apple earnings on the close. The futures action is nuts.
Yesterday, the Federal Reserve issued an FOMC edit and chairman Jerome Powell took questions from approved media reporters afterwards. In the end, they set the stage for a March interest rate hike, which is expected to be the first in a series of up to three more hikes this year. The stock market went all over the place and had a big rally in the morning and then sold off on the close. The stock market volatility continued at an extreme on hourly charts yesterday and overnight, but it’s a simple continued reflection on what has been happening on daily charts since New Years and is likely to continue. As I wrote the other day we saw a VIX spike in December and then once just this week. Typically VIX spikes happen many months in between each occurrence, and sometimes take even a year to happen again. The fact that this second one happened so quickly is a sign we are not in a bull market anymore and instead you can expect stock market volatility to be a defining feature for the rest of this year.
Think of it is as jump, slip, and slide stock market action that feels like an up and down roller coaster.
Right now the S&P 500 has a simple short-term support and resistance zone. It’s likely to trade in it over the next couple of days, perhaps even a week, before it makes its next meaningful move.
Current support is the low of this week and resistance is the 200-day moving average on the S&P 500 below 4500.
Don’t be shocked if the S&P 500 ends up trading between these levels for a bit.
Many are trying to buy thinking things are oversold that it is the bottom.
They are right, things are oversold, but such thinking stops working once a bull market comes to an end, and the S&P 500 appears to be making the transition from a stage three topping phase into a stage four bear market, which many stocks and ETF’s, such as ARKK, are already in, as they are well below their 200-day moving averages now.
Also, while we all obsess over the stock market, right now it is really the bond market that is the key.
Bond yields have been rising for the past several months and have been starting to pressure the board market his year.
Yields are likely to continue to rise to factor in coming rate hikes and even potential future inflation.
Yields aren’t even over 2% on the 10-year US Treasury bond, which last month showed that CPI inflation rose over 7% in the past year.
Bond values go down when yields go up. The LQD corporate bond ETF sold off after the Fed meeting yesterday for a new low for the year.
I’d look for this current rise in bond yields (and decline in bond ETF’s) to end around the next Fed meeting in March, probably before it.
It’s going to be difficult for the stock market to have a sustainable rally until it ends. In fact, the LQD peak and downtrend preceded that of the S&P 500.
So look for jump, slip, and slide action and stock market resistance levels to hold until then.
If the green futures hold into the open then we’ll get a market opening jump. But how long will it take for it to slide?
Tomorrow? This afternoon?
Action like this makes it tough to trade, because the swings are so crazy and there are no real sustainable rallies. It’s easier to just focus on things that are BEATING the performance of the US stock market. That’s what I talked about in my video yesterday.
I don’t see an actionable stock market trade anyone could do today when it comes to the S&P 500 or the broad market. The market like this is like putting money into a slot machine.
-Mike
