After absorbing a slew of bad retailer earnings reports and numerous hawkish Fed statements, the market finally rallied last week and put a weekly cycle bottom in place.  The S&P 500 corrected almost 21% peak to trough.  If this reversal is durable, meaning if the rally can last all the way to late summer and early fall, then the market is forecasting that a recession is not in the immediate horizon.

The market has priced in the rate hikes and slow earnings growth, but it has not priced in the pending quantitative tightening.  It normally takes about 6-9 months for the quantitative tightening to work through the economy to cause it to slow down.  Eventually the slowdown will morph into a recession.  Combating a high inflation has never been successful without causing a recession.  The best medicine for high inflation is recession.  There is no other way to put it.  Because of the current strong consumer and corporate balance sheets and strong employment, a recession will be stalled in 2022.  A recession is very likely in 2023.  The market typically bottoms 4-5 months before a recession ends.  So the market has ways to go before the 4-year cycle bottoms.

Economically, it is in slow down phase in 2022, which will morph into a recession in 2023.

Technically, the 4-year mid cycle {March 2020 (low)-January 2022(high)-May 2022(low)} corrected 20% from high to low and also retraced 38% of the move from low to high.  This May 20 low concluded the current 4-year mid-cycle correction.  Because this May 20 low is outside of a typical seasonal low (February/March or September thru November) location, it signifies the second leg of the 4-year cycle is a bearish one, meaning it will NOT make a new high in this second leg rally.  The January 2022 high will be the high of the 4-year cycle.  A new all time high will have to wait until the next 4-year cycle.

Below is the S&P 500 daily chart.

The relief rally targets are listed in the chart.  38% retracement is around 4195 for about 10% rally. 50% retracement is around 4314 for about 13% rally.  61.8% retracement is around 4433 for about 16% rally.

It is very close to 38% retracement right now, the market could be meeting resistance at 4195 level.  But it is not a good idea to short it because this rally is more durable than the March low.  We are expecting this rally to last into late summer.  Granted, the rally will be choppy.  If you are a short term trader, there will be many good trading opportunities, long and short.