To The Moon

Summary:

1. Why did the US stock market fall on Monday? Where will it fall to?
2. Two major anxiety events this week
3. Macro concerns and Two more signals to capture the bottom of the stock market

Major stocks slides on Monday, $S&P 500(.SPX)$ fell1.54%, $NASDAQ(.IXIC)$ fell1.58%, $DJIA(.DJI)$ decilned 1.45%. One trading secsion before, $DJIA(.DJI)$ just break thourh 7 month high and entered into technically bull market, but now it seems have failed breakout above the August highs with a daily MACD sell signal isn't a great look.

1-Why did the US stock market fall on Monday?

Although the interpretation of the news may lagging behind, from some market sentiment, technical analysis and even macro factor analysis, the market is indeed full of some concerns this week:

• Is the short-term market overweight?
• Will US stocks repeat the decline in 2008?

I would like to point out eh $Cboe Volatility Index(VIX)$,which rose over 8%, the index has fallen from above 33 in Sep/Oct to around 20 on last Friday(approaching the previous low of 19), and rebounded sharply and closed at 22.21 on Monday.

Cited from Michael J. Kramer on Twitter

I did share in my article on Oct 18th: Not A One-day Rebound? 3 Reasons & Key Levels Discussion: $USD $VIX $SPX $IXIC $DJIA

The trend of VIX is negatively related to the trend of spx. Welcome to review at anytime. If the panic index continues to rise, the $S&P 500(.SPX)$ should still need to fall.

Then the $S&P 500(.SPX)$ fall to where?

From the technical point of view, after a 18% bounce/rally, the $S&P 500(.SPX)$ is facing the resistance of 200 DMA around 4,054 point, then there was also a gap left on November 9 atraccting to fill up.

From Tiger brokers

From the 30m candle chart, I think the 3,925 point area will be a short-term support. If this support fails, it is very likely that $S&P 500(.SPX)$ will fill the gap below 3850 points.

From Tiger brokers

Notes：$NASDAQ(.IXIC)$ still far from the 200 day pressure level and $DJIA(.DJI)$ had broke through its pressure in early November.

2-So, what downward traction this week? The market is watching 2 events:

1) Powell's speech on Wednesday

Chairman of the Federal Reserve, Powell's speech on Wednesday will likely determine whether the $DXY $USD Index(USDindex.FOREX)$ $Invesco DB US Dollar Index Bullish Fund(UUP)$ goes back up or breaks down below the 200 MA. Keep in mind, a weak dollar is generally bullish for China/HK/EM equities.

Chart from Trading view

Powell's speech will also affect investors' expectations of interest rate hikes in December and when they will end rate hike in 2023. So far Morgan Stanley estimated terminal rate higher than 5.13%。

Bucking the historical trend In 9 of the past 11 Fed hiking cycles, stocks rose rather than fell from the time rates started rising to when the hikes ended.

2) November Non-farm employment data

On December 2, the US November non farm employment report will released. This report is the last Non-farm employment report before the last interest meeting of the Fed in December. Of the past 6 reports, 5 were better than expected.

If the employment report is strong again, the negative impact of inflation or interest rate increases may be shown to be less frightening, which will strengthen the FED's determination of interest rates forcefully, and the US stock market may suffer another setback.

Data shows: there have been 9 times of Nonfarm datas beating estimations in 2022, except for the results in January and April. U.S. stocks usually slide after posting the Nonfarm Payrolls for fear of inflation and rate hikes.

3-What else market fears Investor have? Any forward-looking signals for bottom-up worth referring to?

This pictures shows again. 

Source from Michael J. Kramer at Twitter

Some investors worry that the market will continue to walk out of the trend of 2008 and suffer a sharp decline based on inflation and depression.

Another reason that Lehman defaulted in September, 2008. and in 2022, FTX has just crashed.

In fact, they have different backgrounds:

• Markets were going up in linear fashion since 2008,thanks to money printing by American/European Central Bankers. Since 2022 it has stopped,huge debt + rising interest rates will puncture stock market linear rise.
• During the 2008 Bear Market, the$S&P 500(.SPX)$ price stayed under the 50MA for 630 days or 90 weeks before regaining ground. In 2022, its only been 280 days or 40 weeks.

3-When regarding when the market will bottom up, i would like to bring some perspectives as below:

1) 3Fourteen Research pointed out, General rules to remember:

• Equities bottom AFTER a recession has begun...generally after3-6 months.
• Equities bottom after Fed is done hiking (87 = exception).
• Earnings contract around the start of a recession.
• Multiples compress heading into recessions.

2) Danny Baldus-Strauss at twitter shared an historical data：

Interestingly enough, market bottomed right as earnings peaked in 1974. The other examples are consistent with your statement though, but all bottomed well before earnings did.

Source from Danny Baldus-Strauss from Twitter

3) Bob Elliott, CIO at @UnlimitedFnds reply the sharing：

Great charts. Good to remember that earnings bottom well after stock prices. Will come back to that once we get closer to a bottom!

He added: Some folks think recessions get fully 'priced in' for stocks well ahead of the actual decline in activity. In reality equities bottom after a recession begins, often much later. Dec 2007 Start - Eq bottom Mar 09 Mar 01 - Eq bottom Oct 02, but very close again in Mar 03.

So we can remember the two Factors to acknowledge the bottom:

Earnings needs Bottomed up

Months after Recession begins

Next article I would like to bring some thinking on does the market ready to welcome a bottom up recently.  

Please like and forward my article, thanks.