Updates for Monday 8/29/22
Updates 10:30 PM ET - Sunday
Upcoming key events
The big picture: bearish
The big rally from 6/16 to 8/19 seemed to have been built on two premises: inflation has peaked, and the Fed will soon pivot to dovish. Powell's speech on Friday put to rest that false assumption.
It is interesting to read the following WSJ article, which offers an opinion on why the Fed's tough talk may be temporary.
However are some additional data points to keep in mind.
July PCE may have shown price softening a bit, but looking at the latest charts for key items from above, we think that inflation is likely to rise a bit more again. Hard to keep price down when copper and corn are rising, and oil may soon join the party.
Market breadth is dropping sharply >> bearish
Rising volatility >> bearish
In $VIX 30-minute chart below, $VIX 200 EMA green line is rising sharply. This turns our big-picture signal to bearish.
$VIX is certainly capable of reaching 31-32 at this point. In fact, it may go as high as 35 before the big-picture signal turns bullish again.
How low will price go?
$SPX has formed a very bearish shooting star candle on its monthly chart for August as shown below. Nasdaq and small-cap charts show the same pattern. Market is now in a bearish regime.
So how low can price go? We think there is a good chance that $SPX and the rest of the indices will retest the lows of mid-June in September, or at the latest in October. Where price goes after that depends on the success of this critical retest.
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The information presented here is our own personal opinion. Consider it as food for thought. We are not offering financial advice. We are not promoting any financial products. We are not registered financial advisers or licensed brokers. We make no guarantee that anything will unfold according to our projections. You are proceeding at your own risk if you follow our trades.
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