A Powerful Rally Is Coming
In first 100 days of 2022, we had new highs > new lows only 6 times.
— Willie Delwiche, CMT, CFA (@WillieDelwiche) May 26, 2022
Last time it was that few in a 100-day time period was Oct 2008. pic.twitter.com/YCJdDNfVLP
Today, more than 29% of issues on the NYSE have hit a 52-week low. On the Nasdaq, it's more than 33%.
— Jason Goepfert (@jasongoepfert) May 12, 2022
There have been only 18 similar days since 1984.
The S&P 500 showed a loss a year later once, for -0.2%. Its median return was +32.0%. pic.twitter.com/Tt6965m8Y5
The market has reached extreme oversold conditions from which powerful rallies almost always arise. Two weeks ago, Jason Goepfert pointed out that there had only been 18 similar days since 1984 in which more than 29% of stocks on the NYSE hit 52-week lows and more than 33% on the Nasdaq. This morning, Willie Delwiche showed that there have only been six days in the last one hundred in which new highs on the S&P 500 exceeded new lows – the worst reading since October 2008.
FOMC minutes: “Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings.” https://t.co/eXwZvvF4E4
— Nick Timiraos (@NickTimiraos) May 25, 2022
The reaction to Wednesday afternoon’s Fed Minutes also supports this thesis. The market rallied Wednesday afternoon after the minutes and again Thursday suggesting that 50 basis point rate hikes at the next two meetings are now priced in.
(Click on image to enlarge)
The reaction to Nvidia’s (NVDA) earnings report Wednesday afternoon is also supportive of a big rally. While NVDA’s 2Q revenue guidance came in weak and the stock closed the after hours down 6%, in today’s cash session it opened at the low and rallied hard all day to finish +5% on big volume. Again this suggests that all the bad news is priced in.
Finally, market sentiment is extremely negative. Most investors seem to be leaning heavily bearish. If the market continues to move higher, they will scramble to cover their shorts and add longs.
For all these reasons, the conditions are in place for a powerful rally.