The S&P is entering bear market "correction" territory as it's retraced ~20% from ATH with 6 red consecutive weeks under its belt now.
Currently facing resistance on weekly with a rejection at the 100 EMA, economy experiencing widespread macro headwinds, & a Federal Reserve looking to reestablish credibility as Q1 laid the foundation for calling a recession this year.
3 periods since 2000 where 6 red weekly closes can be considered as benchmarks:
1. Dot.com crash 2000 through 2002 realized 50.5% retracement with 3 instances of at least 6 red weeks, with several instances of significant draw-downs occurring in less than 6 week periods.
2. Brief ~9% retracement in 2004 before reversing and continuing higher
3. Housing crash of 2008 Dropped another 45% following 6 weekly red closes, total retracement ~58%
Instance #2 (2004) was less than 10% retracement and is not a comparable benchmark.
Both instance #1 (dot.com) & #3 (housing) reflect similar initial trends as the current SPX performance, both correcting >50% overall.
The current correction extending forward w/ greater than 50% retracement overall would bring SPX down to the 2020 March low around 2620. This would be a nearly 55% draw-down.
The reversion to the March 2020 low, is still ~35% above previous support/resistance levels that were realized in a pre-QE environment where the Fed was far less divish.
The new QT paradigm with a supposed "hawkish" Fed has not yet played out... will the Fed regain credibility and drive markets lower to address rampant inflation in the economy or will it reverse course and accept higher inflation?
Given the incredible amount of money supply in the markets and bloated Central Bank balance sheets, the Fed's tools are limited to rate hikes and shedding assets. Continuing to print and prop up markets w/ Quantitative Easing has become an untenable position.
Either the Fed tries to steer the sinking ship to safe harbor, slowly reining in its reckless behaviors or the markets go into a tailspin as inflation rips higher.
Currently facing resistance on weekly with a rejection at the 100 EMA, economy experiencing widespread macro headwinds, & a Federal Reserve looking to reestablish credibility as Q1 laid the foundation for calling a recession this year.
3 periods since 2000 where 6 red weekly closes can be considered as benchmarks:
1. Dot.com crash 2000 through 2002 realized 50.5% retracement with 3 instances of at least 6 red weeks, with several instances of significant draw-downs occurring in less than 6 week periods.
2. Brief ~9% retracement in 2004 before reversing and continuing higher
3. Housing crash of 2008 Dropped another 45% following 6 weekly red closes, total retracement ~58%
Instance #2 (2004) was less than 10% retracement and is not a comparable benchmark.
Both instance #1 (dot.com) & #3 (housing) reflect similar initial trends as the current SPX performance, both correcting >50% overall.
The current correction extending forward w/ greater than 50% retracement overall would bring SPX down to the 2020 March low around 2620. This would be a nearly 55% draw-down.
The reversion to the March 2020 low, is still ~35% above previous support/resistance levels that were realized in a pre-QE environment where the Fed was far less divish.
The new QT paradigm with a supposed "hawkish" Fed has not yet played out... will the Fed regain credibility and drive markets lower to address rampant inflation in the economy or will it reverse course and accept higher inflation?
Given the incredible amount of money supply in the markets and bloated Central Bank balance sheets, the Fed's tools are limited to rate hikes and shedding assets. Continuing to print and prop up markets w/ Quantitative Easing has become an untenable position.
Either the Fed tries to steer the sinking ship to safe harbor, slowly reining in its reckless behaviors or the markets go into a tailspin as inflation rips higher.
