A 'coiled spring' - ready to rip upward is the belief some have about stocks. It's not realistic based on growth and earnings expectations.. presuming (and that's a big word) nothing changes. However with change (like 'peace'), sure; the dynamics could and would change; almost immediately.

The dramatic reversal we had Thursday provided a clue of how wound-up the excessive bearishness (or more realistically the near-universal negativity) got the Indexes; and that allowed one of the most exciting reversal moves ever. It does not however mean there's not more work to do before a sustainable low.

Expanding my thoughts about 'more work needed'.. that was my trading point yesterday after the 'algo-drive' chaos reversal. Friday's performance was not only normal, as far as consolidations/retracing for a pre-weekend post-rallying session; but Indexes ran right into rebound levels which S&P was expected to have difficulty with.

As mentioned then, we'll probably see more consolidation early in the week ahead; and then another (and technically important) effort to challenge highs of this week. Barring favorable news I suspect that rebound will be tricky plus unlikely to succeed, unless there's something construction from the war; from the U.K.; but not simply because the Banks made money based on interest.

Meanwhile China's 5-year (term or similar) Congress convenes; and that's of course where we could see a reemergence of the shanghaied capitalists over the last couple years (sorry for the metaphor); which would be bullish both for China and global trade (and yes that is related to multinational earnings). Or it could be the swansong for commie-capitalists and nothing but a Xi hard line. I think it matters, as well as the vehemence (or olive branch) toward Taiwan. 

Another issue: Oil prices; and so far WTI is trading in reasonable ranges, that is not particularly contributing to more inflation via higher fuel costs; but also is not relieving a lot. Some states like Florida suspended gasoline taxes (mostly due to the hurricane or maybe for political favor) temporarily.

Meanwhile California continues milking as much as they can from consumers with a push for rapid EV adoption of course. Although California has a history of taxation in about every way they can (but without superior living standards or education they led with many years ago; but that's an entire discussion) it matters overall though because it's the largest vehicle marketing-base; so the cars or trucks sold in California eventually get commonplace as everyone else follows them; unlike decades ago when distinct conforming California cars did get made (and it was tricky to register a car bought out-of-state). Anyway this is a point about how the movement to EV pulls the rest of the country along. 

This actually ties the Energy issue together; so with Russia focused on the Black Sea (via Turkey - a NATO member) Natural Gas pipeline now; we might just see 'motivation' for Russia to become amenable to better negotiations. If that happens; and rates sort of cap with Treasuries not far above these levels, well that's an argument to hammer-out a bottoming process for equities; even if more work has to be done; the upside for the Index is limited for awhile.

The coming week - perhaps several weeks, barring serious progress or peace in the war - will be challenging. Event risk is high financially; especially Europe as I've highlighted. But there are so many bears; an absence of bids; that still (again) can allow brief but feisty short-covering rallies. For normal investors (or a slightly fatigued analyst like me); it might be time to break for a cruise :).

The 'bear case' is front and center obviously; so that's probably the most, if not only, bullish factor for now. Most everything else is struggling and certainly there's no valuation argument about the majority of big-cap stocks, for now.

Some Banks rose on earnings; others declined. And all are at-risk 'if' systemic events come to pass; such as oft-ruminated issues with Credit Suisse. Still, Friday you had another hint of problems from Jamie Dimon; and I suspect it's a clue that he feels some blowup is coming; of which he knows more than he will discuss with the financial press. Can't be sure; just a hunch given his tone.

Last year there was a Fed trading scandal and a couple resignations. One for sure would be presuming the remaining Fed members would know better and keep their houses in order so to speak. Well guess what, Bostic (Atlanta Fed) acknowledge he violated the non-trading regulations and disclosure failure. It has little or nothing to do with the market here; except more Fed discrediting.

Speaking of cavalier central bankers; we have the turmoil in the UK as the Prime Minister Truss fires her Finance Minister. The long end moved higher in 5 year Gilts in late Friday London trading; which means 'time bought' or not; it is significant when a month-old PM fires the most significant financial advisor.

This was an attempt, as they say, to 'keep wolves at bay'; not well considered. Pension funds have no excuse if they didn't deleverage before today; and we shall see if the Bank of England is able to thwart rising yields next week.

Discussions about responding to central bank 'errors' and 'miscreants' (rather strong term but basically disorderly attention to markets and policies); mostly is a reflection of 'lack of depth' or just inexplicable as they were so far 'behind the curve' for so long; and they could not have been that naive (we knew, and I am not a bond guy nor economist; so how could those PHD's not know?). 

The disconnect between the central banks and the real economy was clearly amplified by the asset markets; as real estate and stocks zoomed insanely; at the same time buybacks were allowing incredible unjustified compensation to a lot of big-cap executives, as we repeatedly pointed-out. That preceded huge insider selling (biggest in history) last year; and our warning to lighten-up.

Bottom line: the Fed has work to do with both credibility and strategy. They'll likely not ease-up on their clearly-delineated (though tardy counter productive tightening) policies. It's unsettling and contributes to more disequilibrium.

Most of the dramatic purge and rebound this past week was technical for the most part, as we had anticipated due to the crowded short-side trade. It also came after a record week of Put buying; so they ran-in the bears briefly.

So the turbulence will continue next week, and I'd not be surprised if we break hard at some point given what I still see as 'policy miscalculations' which may be viewed as central bank errors; both at our Fed and UK's B of E as well.

There might be a so-called clearing event that finally gets psychological panic that sticks for more than 30 minutes; again due to too many agreeing with the problems. That means you get intervening bounces but 'what if' realization of the whole world's diminished growth prospects we've talked-of for months do impeded bids beyond short-covering; and even compel more liquidations.

For months I've had measures to 'at least' where we are generally speaking; as well as extensions down to ~3100-3200 S&P; and even ~2600 in a shake of systemic-risk caliber. Besides it's October; and barring sudden 'ceasefire' or something out of the blue, there's nothing particularly enticing about the S&P here; aside short-covering that dissipates; and while it leads to an important or climactic low; as I've noted; you can get multiple selling climaxes in an era where algo's are controlling so much of the linear trading behavior. 

More By This Author:

Market Briefing For Thursday, Oct. 13
Market Briefing For Tuesday, Oct. 11
Market Briefing For Thursday, Oct. 6