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S&P 500 Bounces Off Support For the Third Time, What’s Next?

April 29, 2022

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1:01 pm

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51 comments

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Economics

S&P500 chart courtesy of StockCharts.com, annotations by Mish.

Technical Rally

The stock markets rallied sharply on Thursday, smack in the face of a miserable GDP report.

The move was not at all surprising technically speaking. Stocks are more than a bit oversold and the bounce was off a level where stocks have rallied twice before.

The problem for the bulls is that each bounce off a technical support level gets weaker and weaker.

Looking Ahead

The 4100 level support may not survive another test. And the next level of support is somewhere in the 3700 to 3900 level area. There is no technical or fundamental reason to expect that level to hold either.

S&P 500 Monthly Chart

I keep returning to the above chart and see the same thing: A Fed QE induced speculative bubble that’s the biggest on record.

It’s possible for any level to hold, even a non-support level, but 3200 is at best not all that likely. Not even 2400 represents a good bargain and that would be a 50 percent decline from the top.

Poking Fun of the Day

BREAKING: Amazon $AMZN downgraded from “Sell” to “Cramer Top Pick.”

— Hedgeye (@Hedgeye) April 29, 2022

Many people follow Cramer just to do the opposite.

ARKK

ARKK, Cathie Wood’s ARK innovation ETF failed to rally at all on Thursday. Technically speaking it seems to have a date with 40 then 32.5.

A complete round trip from 27 to 159 and back looks increasingly likely.

Some1 crunched the numbers and its only 160ish
All good 👍😅

— John Doe (@Zero__edge) April 27, 2022

TDOC Weekly Chart

TDOC bounced hard off support at 27. Unfortunately, it fell from 300 to 27 along the way.

ARKK is full of garbage like that, which explains why ARKK is down 69 percent from the high and still falling fast.

I keep repeating that people have no idea what carnage is coming. ARKK typifies the bubble.

This post originated at MishTalk.Com.

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51 Comments

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killben

4 years ago

Holding 3rd time but barely looks like..

Dean_70

4 years ago

We need another politically motivated event as the quickly deteriorating economy picks up steam. With elections around the corner there will be more reason to blame our political failures on Russia.

The carnage by the end of the year will be epic. The everything bubble is morphing into the everything crash!

MPO45

4 years ago

Reply to Dean_70

Well Canada has chosen open borders to fix labor shortages, will the US do the same? At the very least, it will make for a highly radioactive football. Let the games begin!

https://www.bloomberg.com/news/articles/2022-04-29/canada-taps-low-wage-migrants-for-quick-fix-to-labor-shortage

Dean_70

4 years ago

Reply to MPO45

After Biden took office the US southern border has been flowing with hundreds of thousands crossing. Regardless of policy we have opened the border. Other than Trump, US presidents talk tough about border security but it has been, for generations, an unwritten policy to loosen entry restrictions to offset wage inflation by mostly ignoring the inflow. I’m sure this inflow will also effect elections in many states. In California they cannot ask for ID when voting. You simply state your name and they check you off a list but there is no voter verification.

Christoball

4 years ago

Reply to MPO45

The price we pay for liberal immigration policies.

https://www.recreation.gov/timed-entry/10086745?fbclid=IwAR2X8M-UBC1yEEylZ6ba0ah4edkayWkE3TanFTYAdZpUjBVMt7kofmMKchE

Reservations are needed just to enter our National Parks. Some foreign national might grab your spot.

Carl_R

4 years ago

Reply to Christoball

Never forget that most immigrants are in the 20-35 age group, the prime working ages, and just below the peak consumption ages. Thus they provide an economic benefit to the country they immigrate to, and create an economic hole in the country they left. Countries who are left with an aging population, as their young leave, end up mired in poverty. Do immigrants take jobs? Yes, of course. Do they also consume, and thus create jobs? Yes, of course, to that as well. Thus, it’s not as simple as “immigrants bad”. Immigrants who are criminals are not a good thing, but immigrants that boost the economy are a good thing.

Christoball

4 years ago

Reply to Carl_R

They actually deprive their homeland of necessary youth. Also if their best and brightest leave, they promote further decline in their already struggling civilization. Pro immigration people will not be satisfied until there are a half billion people in the US, and 60 million in California. Excess immigration does not boost a real economy but ruins a Nation. Only fractional reserve types win, and the reserve is getting smaller. I grew up in California with only 20 million Americans living here; it was wonderful.

Carl_R

4 years ago

Reply to Christoball

The problem comes when you try to mix open borders with Federal benefits. That invites people to come for the benefits, without intention to work.

Irondoor

4 years ago

Reply to Carl_R

By definition, an illegal immigrant is a criminal. I am all for legal immigrants. If they have a needed skill, or capital to invest, they should be most welcome. If what you say is true; that more immigrants create more jobs, which creates more demand, which creates even more jobs, which creates more tax dollars, etc., it sounds like a perpetual motion machine with no losers. We should have our national debt paid off in no time. Just bring all of Central America here. But, of course that isn’t the way it works. Just visit the jails and prisons in California.

Carl_R

4 years ago

Reply to Irondoor

My point is this. Children must be supported, and thus have a negative effect on GDP. Old people must be supported, and thus have a negative effect on GDP. People in the middle produce more than they consume, and support the young and the old. That is true in all economies, everywhere. Thus, if you take a subset of the people in the middle and lose them, the country losing them loses their most productive people, and becomes mired in poverty. The country that gains them is the winner. Immigrants are always heavily weighted towards healthy, young, adventurous adults. That is why the US has done so well for so long. They have had a net inflow of immigrants for hundreds of yeas. That’s also why Central America has been mired in poverty for so long; they have had a net outflow.

Not all immigrants are equal, however. You get hard core criminals mixed in. Thus, it is important to control borders. That must always be the first step. If you can’t control borders, you can’t have an immigration policy. It does no good to deport a criminal if they can just return the next day. Thus, the sequence of events should be:

1. Control borders (through a wall, drones, or whatever means are most effective)

2. Establish a policy for who to admit

3. Have amnesty for those who came in illegally, but who have shown that they are an asset, and not a liability

prumbly

4 years ago

Reply to Dean_70

Ukraine’s war with Russia should be over quite soon, as Russia has almost achieved all its objectives.

Carl_R

4 years ago

It’s worth pointing out that one index already broke support, that being RUT. It is back up to support levels of about 1890, so yesterday’s drop to about 1870 might be an insignificant piercing of support, or it might portend more downside to come.

Carl_R

4 years ago

Reply to Carl_R

NDX joins RUT in having broken through support, but again, just barely.

ohno

4 years ago

Looks like a head and shoulders on the weekly. Should rollover. Then again if it keeps testing and doesn’t break thru we could be look at the opposite of what everyone is thinking. Just my opinion. I dont trust it either way. I do know they will try every shanigan in the book but things really aren’t looking that good.

thimk

4 years ago

All of the stock buy backs. All of the stimulus. All of the zero fed funds rate. All of the QE. All of the government spending. All of the tariffs. All of the zombie corps- couldn’t put Humpty back together again. But by God we have a strong dollar /s

Irondoor

4 years ago

Reply to thimk

Yep, the $ is just the cleanest shirt in the dirty laundry.

Christoball

4 years ago

In most of the indexes there are mostly weak companies, with just a smaller percentage of stronger companies holding index values up.

Nasty Edwin

4 years ago

This is how the dot com bust played out. Garbage stocks fell apart first then the ones traders thought were value. No telling how ugly it can get or how fast it may happen but it will get ugly

Tony Bennett

4 years ago

Reply to Nasty Edwin

Yes. Fund managers – sensing a cliff – knew at the end of the day they would have to answer to their investors.

Better to be caught holding the bag containing Apple than dogpoop.com.

Carl_R

4 years ago

Reply to Nasty Edwin

Yes, that’s exactly how it played out then, and how it is playing out now. The important thing to remember, though, is that this is a bear market, and not a crash. Thus, it will happen over a matter of months, not days. Even though the earnings of the leaders aren’t going to plummet, a higher interest rate implies a lower PE, according to the formula of PE=1/(i+2), and a lower PE means a lower stock price. With 30 day rates at, say, 0.25% that implies that the PE should be 44. With an interest rate of 2.25%, that implies a PE of 23.5. If the interest rate should rise to 5%, the PE should go to 14. At an interest rate of 10%, the PE should be 8. For those that think that is impossible, the market PE was 8 in 1982, as I recall, when interest rates were through the roof.

So… tell me how high interest rates will need to go to bring inflation under control, and I will project what the PE will drop to. My feeling is that with the GDP negative in the first quarter, but inflation at high levels, the Fed has some difficult choices ahead. If I had to make a wild guess, I would guess that we will have the Fiscal and Monetary policy going in opposite directions. The Fed will be raising rates, which will tend to slow the economy, and Congress will be passing additional stimulus, trying to boost the economy (but also boosting inflation).

It seems that we live in interesting times.

Lisa_Hooker

4 years ago

Reply to Carl_R

Wake me when the PEs for good companies stay under 10 for two consecutive quarters.

Tony Bennett

4 years ago

Shades of 2008?

I saw that ZH chart yesterday comparing 2022 to 2008 ytd … rhyming.

Vividly recall back in 2008 after a drop from highs there was trench warfare throughout the Summer … before ledge gave way Labor Dayish.

shamrock

4 years ago

Is TSLA still worth 0?

killben

4 years ago

“I keep repeating that people have no idea what carnage is coming.”

Is around 1500 in the S&P possible – that nearly 70% from top?

Any guess on time frame?

If you look at it S&P is only down 15% over last 2 months as the support (around 4150) is holding as of now.

Tony Bennett

4 years ago

Reply to killben

“Is around 1500 in the S&P possible – that nearly 70% from top?”

…

Hussman has been barking up that tree (as possible) for a while.

shamrock

4 years ago

Reply to killben

I’m thinking 500.

MPO45

4 years ago

There are three companies I follow to gauge the health of the consumer:

P&G – Did well this last quarter but warned about inflation. This is a proxy for suburban soccer moms and their consumption patterns.

Amazon – Did not so well last quarter. This is a proxy for the health of retail and small business across the U.S.

Apple – Did ok but issued warnings re:China. This is a proxy for the health of the male consumer and affluent.

2 out of 3 aren’t in the “rainbows and unicorns” spot I’d like them to be and with the Fed raising rates again next week, it’s looking like put options all the way down.

Tony Bennett

4 years ago

Reply to MPO45

Good luck!

RonJ

4 years ago

“ARKK is full of garbage like that, which explains why ARKK is down 69 percent from the high and still falling fast.”

Singing bye bye Miss American Pie. Drove my Chevy to the levy but the levy was dry…

davidyjack

4 years ago