I believe that the market is going to continue to see plenty of downward pressure, and I think at this point people are starting to at least wake up to the idea that perhaps we are in a trickier situation than advertised.
- The NASDAQ 100 has gapped lower to kick off the session on Tuesday as the CPI numbers came out much hotter than anticipated.
- This had Fed Fund Futures markets pricing in further tightening, and therefore market participants started to sell everything.
- At this point, it never ceases to amaze me that Wall Street will come up with some type of narrative that is bullish under any circumstance.
I’m going to go out on a limb here and say that the next “narrative” is going to be that the market has “already priced in 75 basis point rate hikes”, and that we overreacted. Nonetheless, I believe that the market is going to continue to see plenty of downward pressure, and I think at this point people are starting to at least wake up to the idea that perhaps we are in a trickier situation than advertised.
Be Cautious with Bear Market Bounces
Remember, this is the same environment where people said that “2 negative quarters of GDP is not necessarily a recession.” This is hubris at best, and negligence at worst. I have this theory that the clouds on Wall Street have been pumping up the narrative occasionally to drop stocks in the laps of unsuspecting retail traders. Every time this market has rallied significantly over the last couple of months, there has been a vicious pullback. I anticipate that will continue to be the case, and therefore it’s difficult to get very bullish at this point. Certainly, a lot of confidence has been shaken during the day, and now the question is whether we break down below the 3900 level. If we do, that opens the door for testing the lows again. If we do that, then the bottom probably falls out.
At this point, I continued to look at rallies as fading opportunities, especially as the 50-Day EMA has been broken through solidly. I do not have a bullish case unless of course the Federal Reserve shocks everybody and changes its overall attitude. Because of this, it’s very unlikely that we will see the markets be able to sustain a rally for a significant amount of time, so that needs to be something that should be in the back of your mind. Position sizing on the short side is always a little bit tricky, and you certainly don’t want to go “all in” right away, because bear market bounces get nasty.