Last week a few Fed officials made very hawkish statements that put out any hopes of rate hike pause or pivot in the December Fed meeting. The market responded negatively to the hawkish statements, but with low volume. The downside momentum was not noticeable, and the weekly bullish posture is still intact. It appears that the market participants have become numb to the hawkish Fed and less reactive. However, underneath the resilient indices, the market is very defensive and speculative animal spirit is nowhere to be found.
The market appears to be in a standoff where all the negative fundamentals have been absorbed in the price, therefore the sellers have not been able to take it down further. Yet buyers are fearful and are not actively buying the market. Only the few dividend paying stocks in healthcare and energy are getting the love. This explains why the DOW is leading the S&P 500 and NASDAQ by a wide margin. Investors are hiding in the DOW.
This type of market is extremely difficult for both the shorts and longs because the moves on either side are short lived and sporadic. The bulk of the price damage is done, but it needs time to finish the bottoming process. So if we indeed get the year-end rally, it is a bear market rally.
Year 2022 has been a difficult year for the bond and stock investors. The bond investors suffered the biggest loss since 1780. The only winner is in commodities, specifically oil stock investors. The crude oil price peaked in March when the embargo of Russian oil took place, but the elevated crude oil price kept oil companies profits high. High commodity price is bad for everyone, but good for the commodity producers until it is too high to cause demand destruction. At this point, it is not wise to open new positions in oil stocks. It is too late in the game and the oil stocks are on the way down.
Below is the S&P 500 weekly chart.
It is 5 weeks into the weekly cycle. The weekly cycle is still in the low to high phase, meaning the high of this weekly cycle is not made yet. We suspect the S&P 500 will attempt its 200-day moving average in the next week or so. And it will fail around the 200-day moving average which will invite the shorts to sell around the 200-day moving average currently at 4067. After a brief selling around 200-day moving average, it will gather energy and attempt 4200-4400 level towards year-end and the first 1-2 weeks in next year.
If you do trade, please be nimble. Take your profits quickly!
