SP500: Sell The Rallies

seekingalpha04-24

The S&P 500 is attempting to bounce back after a 5% dip, given the temporary geopolitical de-escalation.However, given the Fed's hawkish pivot and the unfolding GenAI bubble burst, the downtrend is ...

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If not, the 100dma support is likely to break, and the S&P is likely to fall towards the next support level at the 200dma for a 10% correction. If the 200dma support breaks, the S&P's downtrend is likely to extend into a 20%+ bear market.   Barchart\"Buy the dip\" or \"sell the rally\"?So, what's the proper tactical positioning in this market?Obviously, if the bull market is expected to continue, this 5% dip is an opportunity to buy. But, if the trend fundamentally changed, and we are in the early stages of a bear market, any bounce in a downtrend is an opportunity to sell, or bet on the downside via other bear strategies. What caused the selloff?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"NVDA":"英伟达","IE00BJJMRY28.SGD":"Janus Henderson Balanced A Inc SGD","IE00BMPRXN33.USD":"NEUBERGER BERMAN 5G CONNECTIVITY \"A\" (USD) ACC","LU0171293334.USD":"贝莱德英国基金A2","UPRO":"三倍做多标普500ETF","OEF":"标普100指数ETF-iShares","LU0011850046.USD":"贝莱德全球长线股票 A2 USD","LU0466842654.USD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"A\" (USD) ACC","SPY":"标普500ETF","LU0097036916.USD":"贝莱德美国增长A2 USD","IVV":"标普500指数ETF","XLK":"高科技指数ETF-SPDR","IE00B3M56506.USD":"NEUBERGER BERMAN EMERGING MARKETS EQUITY \"A\" (USD) ACC","MSFT":"微软","IE00BD6J9T35.USD":"NEUBERGER BERMAN NEXT GENERATION MOBILITY \"A\" (USD) ACC","LU0198837287.USD":"UBS (LUX) EQUITY SICAV - USA GROWTH \"P\" (USD) ACC","SSO":"两倍做多标普500ETF","BK4561":"索罗斯持仓","QQQ":"纳指100ETF","AAPL":"苹果","SPX.AU":"Spenda Ltd","LU0149725797.USD":"汇丰美国股市经济规模基金","LU0127658192.USD":"EASTSPRING INVESTMENTS GLOBAL TECHNOLOGY \"A\" (USD) ACC","SPXU":"三倍做空标普500ETF","LU0289739343.SGD":"SUSTAINABLE GLOBAL THEMATIC PORTFOLIO \"A\" (SGD) ACC","VOO":"Vanguard标普500ETF","SDS":"两倍做空标普500ETF","SH":"标普500反向ETF","OEX":"标普100","IE00BDCRKT87.USD":"PINEBRIDGE GLOBAL DYNAMIC ASSET ALLOCATION \"ADC\" (USD) INC",".SPX":"S&P 500 Index"},"translate_title":"SP500：卖出反弹","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SPX.AU":1,"XLK":1,"QQQ":1,"NVDA":1,"MSFT":1,"AAPL":1,"ESmain":1,"SPY":0.9,"VOO":0.9,"US7Y.BOND":0.9,"US6M.BOND":0.9,"US5Y.BOND":0.9,"US3Y.BOND":0.9,"US30Y.BOND":0.9,"US2Y.BOND":0.9,"US12M.BOND":0.9,"US10Y.BOND":0.9,"US912797GK78.BOND":0.6,"IVV":0.6,"US912796CX52.BOND":0.6,"US912797FH58.BOND":0.6,"US912797FS14.BOND":0.6,"US912797GB79.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6,"US912797HG57.BOND":0.6,"US912797HH31.BOND":0.6,"UPRO":0.6,"SSO":0.6,"SPXU":0.6,".SPX":0.6,"SH":0.6,"SDS":0.6,"OEX":0.6,"OEF":0.6},"content_text":"The S&P 500 is attempting to bounce back after a 5% dip, given the temporary geopolitical de-escalation.However, given the Fed's hawkish pivot and the unfolding GenAI bubble burst, the downtrend is likely to continue.Thus, tactically, this is a \"sell-the-rallies\" market.   panida wijitpanyaThe bounce The S&P 500 (SP500) is attempting to bounce from the 5% dip, after falling for six consecutive days. Here is the chart of the S&P 500 e-mini futures (SPX). The 5% selloff bottomed exactly when Israel launched the retaliatory attack on Iran, which was overnight from Thursday to Friday in the US. After a \"calm\" weekend, the S&P staged a bounce on Monday, the first up day in the last seven. Technically, the S&P 500 futures stopped falling right at the key 100dma support level on a 2Y chart. So, here is the question: Is the selloff finished after a \"classic\" 5% dip? If yes, this is definitely a \"buy the dip\" opportunity. If not, the 100dma support is likely to break, and the S&P is likely to fall towards the next support level at the 200dma for a 10% correction. If the 200dma support breaks, the S&P's downtrend is likely to extend into a 20%+ bear market.   Barchart\"Buy the dip\" or \"sell the rally\"? So, what's the proper tactical positioning in this market? Obviously, if the bull market is expected to continue, this 5% dip is an opportunity to buy. But, if the trend fundamentally changed, and we are in the early stages of a bear market, any bounce in a downtrend is an opportunity to sell, or bet on the downside via other bear strategies. What caused the selloff? The most important decision now is to fully understand what caused the 5% dip. Geopolitics On the surface, the selloff coincided with the unfolding geopolitical escalation in the Middle East. The selloff started when Iran attacked Israel, which was essentially a black swan event - one of the most dangerous events that could have happened. A full-blown regional war in the Middle East with a direct war between Israel and Iran could cause a spike in oil prices, possibly to $150 and higher. The selloff ended with a restrained retaliatory Israeli attack on Iran, which likely reduces further escalation for now. This apparent temporary de-escalation could trigger a relief rally, which possibly started on Monday. In addition, the probability of a deep 1987-like crash is lower now. The Fed's hawkish pivot However, the Fed also made a hawkish pivot last week, when Fed Chairman Powell signaled a return to the \"higher-for-longer\" mode, acknowledging that inflation continues to remain sticky and elevated. In fact, as I argued, this is likely a \"higher-until-recession\" mode. In other words, inflation is unlikely to fall as long as the labor market remains tight, which means a classic recession with rising unemployment is necessary to restore price stability. Thus, obviously, market participants now have a reason to sell, in expectation of the recessionary bear market. The stock market is forward-looking, and the recent selloff could be in expectation of a recession. The AI-Bubble burst But the recent 5% selloff started much earlier, or specifically on March 8 with a completely random reversal selloff in Nvidia (NVDA). I documented this selloff, questioning whether March 8 was the \"blow-off top\" in NVDA - and with that the top of the GenAI bubble. NVDA broke the key 50dma support level last week, and the March 8 intraday high held as the top.   BarchartPrice bubbles usually reach the top randomly - this is the point at which the buying demand stops, as all buyers are all-in, and somebody tries to take profit, which causes the selloff. But the actual bubble burst is usually triggered by a disappointing earnings report - based on the evidence from the 2000 dot-com burst, which was triggered by the disappointing earnings season in March of 2000. It looks like we are in a very similar situation now - despite all the excitement about AI, the Technology sector (XLK) is essentially flat in 2024 YTD, while the tech heavy Nasdaq 100 (QQQ) is up only 2% YTD. The top has likely been reached, and the selloff started on March 8 with NVDA. The earnings from AI-themed big-tech companies like Apple (AAPL) and Microsoft (MSFT) could trigger the bubble burst with a slight miss. So, what's coming next? The current 5% dip has been caused by several factors, including the escalating geopolitical concerns, the Fed's hawkish pivot, and the unfolding bubble burst in AI-themed stocks like Nvidia. The geopolitical situation has de-escalated for now, and this reduces the risk of a crash. But nothing has been solved fundamentally in the conflict between Iran and Israel, and the uncertainty with respect to further escalation is likely to keep oil elevated, given the geopolitical premium - and this is a negative for the stock market. Higher oil prices also interfere with the Fed's inflation fight. But the Fed also has to deal with sticky services inflation, which refuses to normalize due to a strong labor market. As a result, the 2Y yields (proxy for the monetary policy) are likely to rise towards 5.3%, indicating no cuts in 2024, and a \"higher-for-longer\" scenario, while the 10Y yields are likely to rise above the 5% level, as real rates increase. This alone can trigger a 10% correction, based on 2023's example. Thus, the current 5% dip is likely to extend into a 10% correction. Implications The S&P 500 is possibly \"cruising\" towards a recessionary bear market - given the implied \"higher-until-recession\" Fed mode. In the meantime, until the first signs of a recession, higher interest rates, higher oil prices, and a bursting AI bubble are driving the S&P towards the 10% correction. However, bear markets are notorious for bear market rallies - and thus very difficult to navigate. It seems like we could be entering a counter rally, given the geopolitical de-escalation - but this will be an opportunity to sell.  The risk to the bearish outlook on the S&P is if the disinflationary process continues, while the labor market stays strong, which would allow the Fed to normalize its rate policy. The surprise could come from the PCE report on Friday - if the core PCE inflation rises 0.2% MoM, below the 0.3% MoM expectation. This could revive the hopes for a July cut and push interest rates lower, and if combined with the S&P 500 rising above the 50dma resistance - could crush the bear thesis.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2429641144"}