Jump to content

S&P 500 Forecast: Rare Reversal Price Action in US Markets, Traders Switch to Sell the Rip


Recommended Posts

S&P 500 Analysis and News

  • Rare Price Action in US Indices
  • Market Participants Flip from Buying the Dip to Selling the Rip
  • Has the Powell Put Been Reached?

Flipping From Buying the Dip to Selling the Rip Mentality

A rarity in yesterday’s price action with the S&P 500 recovering from an intraday loss of more than 3.98% for only the third time. Now while a recovery in the index from such a sizeable drop may look encouraging, giving a sense that “buy the dippers” are back, the other two times that this had occurred was during 2008 on October 16th and 23rd. As such, in light of the aggressive bid into yesterday’s close, market participants have used this to sell the rip. Ultimately the factors behind the sell-off remain unchanged thus far and all eyes will be on the FOMC meeting tomorrow.

The move across equity markets is largely in response to the aggressive hawkish Fed outlook. At the start of the year, the forecast for the Fed was 3 rate hikes in 2022 and the possibility of quantitative tightening at the end of the year. Fast forward two weeks and now the consensus is for 4 rate hikes with liftoff in March (5-6 hikes if you believe Jamie Dimon) and quantitative tightening (QT) as soon as Q3. That is quite the shift and if most remember how QT went during 2018 (Figure 1), it wasn't exactly a great time for equity markets and other risk-on assets like Bitcoin. . What's more, geopolitical tensions between Russia and Ukraine are not helping sentiment and thus prompting traders to reduce exposure to equities and seek safe havens such as US treasuries, the Japanese Yen and the Swiss Franc.

 

Figure 1. S&P 500 and Bitcoin Performance in 2008

S&P 500 Forecast: Rare Reversal Price Action in US Markets, Traders Switch  to Sell the Rip

Source: Refinitiv

As mentioned above, this week the major focus is on the Federal Reserve, where there is a possibility that the Fed could abruptly end its QE taper (currently expected to end in March). The reason being is because employment is near full capacity and of course inflation is sitting at a lofty 7%. The fact that the Federal Reserve is still doing QE is somewhat crazy. That being said, the main attention will be placed on Chair Powell's presser and he will be well aware of the recent stock market turbulence. This is where I think there is a potential for a rebound in equities, on the basis that Powell fails to live up to the uber hawkish expectations. In turn, this is about finding out whether we have reached the Fed put, or is it much lower, in which case, equities will reprice lower.

Of note, there has been academic research on the Fed put, which is an interesting read.

For now, risks remain tilted to the downside for risk assets, which could quite easily change should Powell provide some words of encouragement in terms of signalling that market pricing of Fed tightening is possibly a bit too aggressive. That said, the first point of resistance resides at the 200DMA, while key resistance sits at the 50% fib of the correction from the record high at 4520, which I would call the bull and bear line. In other words, bearish below and bullish on a close above.

S&P 500 Chart: Daily Time Frame

S&P 500 Forecast: Rare Reversal Price Action in US Markets, Traders Switch  to Sell the Rip

Source: Refinitiv

image.png

 

Jan 25, 2022 |  Justin McQueen, Strategist. DailyFX

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • Imagine stepping into a world where every game you play is not just about entertainment, but about unlocking real rewards and experiences that resonate with you on a personal level. That's the magic of Game-Fi projects, where the boundaries between gaming and finance blur, creating an immersive universe where players are not just participants but pioneers of a new era. In the midst of this gaming revolution, there's a project that's been making waves for all the right reasons: NADA Protocol $NADA. Recently, I found myself diving deep into the realm of emerging Game-Fi projects, and NADA caught my eye like a hidden treasure waiting to be discovered. It's more than just another token; it's a symbol of possibility, offering gamers a glimpse into a future where their passion translates into tangible rewards. Let me take you on a journey through the world of NADA Protocol, where innovation meets excitement, and where every move you make could be the key to unlocking a world of endless possibilities. 1. Rewards Beyond Imagination: NADA Protocol isn't just another token; it's a ticket to a world where every move, every triumph, is rewarded. Imagine playing your favorite games and earning tokens simply for doing what you love. With NADA, that dream becomes a reality. 2. Trailblazing Roadmap: What sets NADA apart is its ambitious roadmap, charting a course towards a future where gaming and rewards intertwine seamlessly. With plans to integrate into future games, early adopters of the native token stand to reap massive rewards down the line. 3. Korean Innovation: Behind the scenes, NADA is powered by none other than NADA Digital Co., Ltd., a powerhouse in the Korean gaming industry. With a proven track record and global recognition, NADA Digital Co., Ltd. brings a level of expertise and reliability that sets NADA apart from the competition. 4. Global Validation: It's one thing to dream big, but NADA has the track record to back it up. With a presence in the global market and validation from players worldwide, NADA isn't just a promising project – it's a force to be reckoned with. 5. Exchange Expansion: The anticipation builds as NADA gears up for listing on top exchanges like Bitget. With increased accessibility and liquidity, NADA is poised to make waves in the Game-Fi space, captivating audiences and investors alike.  What are your thoughts, let's discuss? 
    • Hi There - Any update on this??? Or is it time to move my accounts to a platform that can provide DRIPs?
    • Hi There - Any update on this??? Or is it time to move my accounts to a platform that can provide DRIPs?  
×
×
  • Create New...
us