Following disappointing CPI figures the market is still in the Risk-Off mode and S&P500 is in the panic sell off.
Has it found the bottom yet or can it still fall even further?
Technical Analysis (Elliott Waves):
Fundamental indicators::
Following the latest hawkish Fed decision and the speech of Jerome Powell it was made for all to believe that it is still in control and got all the tools needed to fight inflation. This was conveyed through the plan to continue rising rates to 4% up until 2024.
However, markets do not believe - 1) in the long sustainability of inflation as it is not monetary in nature but impacted by supply shock and 2) that rates are going to keep rising until 2024.
All this is visible by analysing Eurodollar Futures Curve (curtesy of Alhambra Investments research and specifically Jeff Snider). The latest curve shows rapid growth of Libor rate to 4% until December 2022, followed by flattening in March 2023 and inversion all the way into 2026. This means that global financial market is expecting worsening of the economic conditions and reduction of rates sometime in the beginning of 2023.
And if this happens as per the market expectations, S&P500 is most likely going to enjoy the loosening of Fed restrictive monetary policy as reflected in the graph of the proposed scenario and start of bull run albeit a very short one.
What do you think about S&P500 and its prospects?
Please share your thoughts in the comments and like this idea if you would like to see more stocks analysed using Elliott Waves.
Thanks
Educational post on the theory of Ending Diagonals:
Has it found the bottom yet or can it still fall even further?
Technical Analysis (Elliott Waves):
- With no signs of correction reversal, previous scenario where a five wave impulse was developing since March 2020 fall - is most likely invalidated now
- The scenario proposed in this idea suggests that we are observing the development of a global Ending Diagonal (see below educational post for more details) since the Great Financial crisis of 2008
- The fist impulse shaped by a zig-zag completed in September 2018 followed by the second wave formed by an Extended Flat and completing in March 2020
- Third wave which culminated in January 2022 was also a rapid zig-zag fuelled by the hype and the Fed's stimulating monetary policy
- In the case of an Ending Diagonal the retracement of wave 4 is usually in the range of 0.786x of wave 3 and breaking the high of wave 1 hence we can expect the correction to reach the level of approximately $2700
- Another guideline that needs to be taken into account is that duration of wave 4 is often longer than wave 2 so we can expect it to stretch into June 2024 (using Fib-Time)
- Hence the current correction may be just the first part (as wave W) of the overall complex shape of wave 4, and given the sharp and rapid movement, it is likely that we are observing a series of triple zig-zags, which fits into Regression Channel and may find support in the region of $3200 - $3300
- Once the first part of wave 4 is over we may see a lengthy upward movement to the level of $4150 in wave X - 'dead cats bounce' so to speak
- And to finish the overall wave 4 another rapid drop in wave Y
Fundamental indicators::
- US Consumer Confidence - in the all time low
- US CPI - no signs of reversal and jumped to 8.5% in May
- US Jobless Claims - rising again since March 2022
- US Interest Rate - raised by 0.75 to 1.75%
Following the latest hawkish Fed decision and the speech of Jerome Powell it was made for all to believe that it is still in control and got all the tools needed to fight inflation. This was conveyed through the plan to continue rising rates to 4% up until 2024.
However, markets do not believe - 1) in the long sustainability of inflation as it is not monetary in nature but impacted by supply shock and 2) that rates are going to keep rising until 2024.
All this is visible by analysing Eurodollar Futures Curve (curtesy of Alhambra Investments research and specifically Jeff Snider). The latest curve shows rapid growth of Libor rate to 4% until December 2022, followed by flattening in March 2023 and inversion all the way into 2026. This means that global financial market is expecting worsening of the economic conditions and reduction of rates sometime in the beginning of 2023.
And if this happens as per the market expectations, S&P500 is most likely going to enjoy the loosening of Fed restrictive monetary policy as reflected in the graph of the proposed scenario and start of bull run albeit a very short one.
What do you think about S&P500 and its prospects?
Please share your thoughts in the comments and like this idea if you would like to see more stocks analysed using Elliott Waves.
Thanks
Educational post on the theory of Ending Diagonals:
In search of the optimal signals