To The Moon

Market Outlook (09 Oct 2022)

Following last Friday's decline, how would the S&P 500 look for the coming week?

1D S&P500 chart as of 08 Oct 2022My observations are:

(MA - moving averages, EMA - exponential moving averages)

• The Stochastic indicator - downtrend
• The MACD indicator - though it has bottomed up, it seems that there may be a double bottom forming.
• Moving Averages lines - the candles are under both MA50 & MA200. This points to a bearish trend in both mid/long term
• Exponential Moving Averages lines - while the EMA lines are closer, they still point to a downtrend.
• Note the down gap between 6 & 7 Oct 2022 - this is usuallya bearish sign. As per the news, this was caused by the favourable "unemployment" rate that implies that the Fed can continue its hawkish stand. This implies that the Fed is likely to continue its hawkish approach towards interest rates.
• S&P500 tested the region near 3,800 but could not break this ceiling. As of 7th October, S&P500 is languishing at 3,639.

From the collective of indicators above, it is likely thatthe downtrend should continuebut a bottom should be reached soon (and eventually).

My investing muse

With the technical indicators pointing to a downtrend, the market waits anxiously for the CPI (inflation) figure which will be revealed on Wednesday. The market is expected to thread cautiously till the CPI is announced. It should be a case of anticipated "bad news" (inflation remaining heightened) versus "not so bad" news (inflation rate has fallen better than expected). In both cases, US inflation continues to weigh on the economy. With this, the market will start to "factor in" the amount of interest rate hike with 75 basis points a "common" expectation.

In Ukraine, Russia has annexed the 4 regions, giving them the "option" to declare war in self defense when attacked. With the latest explosion at the prized Crimea bridge, Russia has the "grounds" to declare war as "self defense". How this will unfold lies largely in the hands of President Putin. I think that Ukraine will try to recover as much ground as possible, knowing the risks of a provoked Russia. Russia does not need to call "bluff" with the wide array of arsenal they have. When cornered, they may feel desperate enough to deploy "desperate" measures like chemical, biological and nuclear weaponaries.

Nord Stream pipeline was attacked and till now, it is unclear who is the culprit. Russia and the west are calling each other guilty respectively. While the culprit is not confirmed, the energy crisis is heightened. Europe is facing challenges and US is trying to help with their gas supplies. Update from Reuters:

Through June of this year, the U.S exported about 57 bcm of gas as LNG with 39 bcm, or 68%, going to Europe, Refinitiv data shows. That is compared with 34 bcm, or 35%, of LNG exports shipped to Europe for all of 2021.

While this is not sufficient (leading to the energy crisis in Europe), this remains an option for Europe.

With the series of weather extremities, many place like Puerto Rico, USA's Florida, Pakistan, China have suffered. The weather has destroyed homes, properties, lives, businesses and affected industries like agriculture, energy, supply chain, tourism. The costs of these are not easy to quantify. However, the amount incurred in damges will be large as homes, cities & infrastructures need to be rebuilt. These would "delay" the revitalization efforts as countries rebuild from the Covid19 pandemic.

In the coming weeks, earnings of banks and the Big Tech would be announced. It is expected to see earnings compression (lesser earnings). With the likes of Google, Meta and Amazon announcing job freeze, revenue fall and retrenchment, it is expected for the earnings to "disappoint". What would weigh on the market is not so much the EPS or revenue but more so of the market outlook.

I recommend all to spend within our means, save "cash for the crash", invest with what we can afford to lose. There will be great companies available at good discounts following the downturn. Let us not forget to do our due diligence and add the margin of safety. When the opportunities present themselves, let us step up and "invest" bravely. For me, I intend to purchase the shortlisted companies in tranches.

@TigerStars

$Energy Select Sector SPDR Fund(XLE)$ $S&P 500(.SPX)$