Late Yesterday, I Called The S&P 500 Ambush As Likely Over

The downswing potential I warned about yesterday, came. Heavy selling continued as the Fed threw cold water in assessing the pace of the recovery, and didn‘t signal readiness to prop it up even more than it does currently. That‘s a disappointment even though nobody really discusses V-shaped recovery anymore. Its pace is uneven – one of the few things that were quite „equally distributed“ yesterday, were sectoral losses in the S&P 500.

The investors jumped on the selling bandwagon, confirming my yesterday‘s reservations:

(…) We have the Fed meeting later today, and while I am not looking for hawkish surprises or any outright optimism, the investors aren‘t taking chances. Sell now, ask questions later seem to be the mantra before the U.S. open.

With volatility spiking to levels unseen since September and October 2020, the question on everyone‘s mind is whether this is the start of another corrective move, and how fast would stocks recover. Make no mistake about it, they will recover – the bull isn‘t over by a long shot, and as I‘ve written in my Monday‘s 2021 prognostications, this year will be still a good one for stocks.

Let‘s assess the damage yesterday‘s selling has done, and look at the course ahead (charts courtesy of www.stockcharts.com).

S&P 500 Outlook

S&P 500 daily

The selling wave in the S&P 500 didn‘t stop with yesterday‘s Fed and picked up steam instead. While the daily indicators flashed their sell signals, this doesn‘t rule out stabilization next, which would disappoint those calling for a (10% or similar) correction. The bull market is intact, and one tough Fed assessment of the situation on the ground, won‘t end it.

Credit Markets

leading credit market ratios

High yield corporate bonds to short-term Treasuries (HYG:SHY) held up much better than stocks did, and investment-grade corporate bonds to longer-dated Treasuries haven‘t broken below their recent lows either. Unless they do, that‘s a good sign for stocks to get their act together, regardless of the weak price recovery attempts thus far.

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Bindi Dhaduk 4 weeks ago Member's comment

Can you please explain to me what's going on with all this craziness with GameStop, the shortsellers, etc?

Monica Kingsley 4 weeks ago Author's comment

To help you out, I ran across this alternative article. Glenn Greenwald is a household name really. Enjoy

greenwald.substack.com/.../...ution-gamesto...-c69

Monica Kingsley 4 weeks ago Author's comment

My answer will likely disappoint you but I hope you'll understand. I concentrate on indices and sectoral ETFs, and their leading stocks by weight if justified. In the interests of a sound S&P 500 decision, I don't divert attention to excesses of limited shelf life. This one will pass. Unless you're invested in it directly, you might prefer a more predictable perfomance than this stock is showing.