Converging risks have battled delusional optimism in the Senior Averages, for months really, while mostly everything in the media proclaiming realizing a 'formal Bear Market' isn't any less absurd. We've been in a bear over a year, a reason for lack of symmetry or alignment (example) of Oscillators vs. Indexes.

Pixabay

So some time, the range of S&P outcomes has been fairly wide, with a 'relief rally' coming from ~3800 where expected, and resistance targeted at 4100 to 4200 which we hovered in for days, with an extended downside measure that can handily fetch 3400-3600, or even lower 'if' war persists and Oil stays high, while the market distribution is about 18 months unfolding, and as oft-noted, particularly masked by a handful of mega-caps that held up S&P. Now, signs of 'a' bottom (3rd consecutive down volume day, often precedes turns) but so many variables. Like with the ~3800 low, liquidity (money availability) is low in a sense, foreign buyers are limited (or part of the problem in debt markets), at the same time we may well washout and bounce 'after' the FOMC, so of like the move the 4100-4200. The Fed won't yet signal a turn, so they need to use care so as not to crash the economy (Housing) and discourage leveraging.

Bonds need to calm down too, and that's a premise for more problems from a generational liquidation (as we noted too many people into expensive equities that remained and the sole reason I called this a mega-cap crash of 2022, not the broad market, as to me it crashed last year). If the Fed sends a message with a full point rate hike, do we get a relief rally 'or' a systemic crash. (My fear for the worst case relates more to the impact if Housing collapses too, as that is the core of family wealth. Last time it took years to recover and I took little if any solace in having warned of what was going on back in 2005-'06, before of course the 'Epic Debacle' call of 2007.) Is the sequel a risk here? Well already has been for stocks (18 months into decline, 6 for S&P), while instability in the Bond Market is what is adding to the panic now. Maybe early hint of washout?

The initiation of that, in a normal sense, is beyond the confirmation of a 'Bear Market', means a final panic washout and time for accumulation... perhaps as we'll see. And actually it might be that, with emphasis on might. What got the Fed's attention today had to be the Bonds not stocks, and it's pathetic that the volatility in this Country has extended so deeply into debt markets. Stocks yes of course. Because the Generals of course are catching-down with the troops in the trenches for months, but we'd need some intimation of a Fed changing policy, but that's unlikely for now. Instead they'll blow-up everything and then react to the chaos they have contributed to developing. A liquidity issue in the Bond Markets is a concern, and remember there's a certain Asian nation that has an enormous Treasury position.. they've been lightening or a long time. It is also the case that there are stories about Japan's woes aiding the velocity.

We're more likely to have a Fed retaining their credibility by doing most, if not all, of the constraining policies they pledged, while whether they aggressively move to 'restriction' is problematic (and would be a mistake). That's because it is not a myopic situation where the Fed really can reverse everything.

Thus we would be concerned the Fed gets restrictive, but the war continues, and they end-up primarily impacting American families and workers, because they'd fail to bust inflation (barely making a dent at a horrible human cost) and prolong the agony of a suppressed economic revival becoming deeper.

That's the evolution of the stagflation I've warned of if a myopic Fed deludes themselves to believing they have that much power. I wish that they did, but in this case fear that a higher dot-plot, lower GDP forecast, inflation raise, and in a sense ... well as I'd discussed last week, the market for the big stocks tends to go down to levels commensurate with what limited growth and profits look like for the coming year, which is by no means what preceding highs inferred.

This is not a secret, in fact that's why mega-cap insiders were the heaviest of all sellers LAST year, not this year. In some cases they are rumored to initiate insider-buying now, often at dramatically lower prices than they sold last year. Even if you accept my thinking (based on what we know so far) on variables, as well as clearly how the market can rebound if Oil breaks and peace occurs, you still have numbers for S&P considerably lower than bullish 2023 dreams

Hence if the S&P Index drives low enough, regardless of Fibonacci numbers or not (those could measure even lower than our extended 3400-3600 S&P if we turned south from the targeted recent relief rally rebound to 4100-4200), it can still be an interesting percentage gain for the insiders or normal investors, and probably what's going on starts with recognizing the primary declines for non-mega-cap growth and small-caps is behind even if they erode nominally, while nibbling and gradually re-entering or adding makes sense on purges. It is tempered because you do 'not' have a friendly Fed and that matters.

Bottom-line: 

S&P cratering to our lower measures, but probably goes lower as it then pauses for the FOMC decision. They won't pivot as of yet, so this paradigm's going to stick around, however it very well could rebound after a coming hike.