Bullish S&P500 and why you should pay close attention to bonds

2022년 5월 18일

Why are the indices keep rising? Simple answer: Powell did not say anything new, and everything is already "priced in."

Key points of the speech:
Rate increase by 0.5% in June and July;
Inflation indicators determine the aggressiveness of rate hikes;
It is expected that the rate will reach a neutral level in the 4th quarter of this year;
It is necessary to slow down the growth of the economy in order to equalize the imbalance of supply and demand;
The economy is strong, GDP growth is expected at the planned level by the end of the year.

Is this a market reversal or just a pullback up?

So far, I see the situation as a retracement, which is yet to be followed by a further decline. The question is, how strong will this decline be? I dare to suggest that we will not go much lower than the local minima and probably will see the S&P500 ranging within the 3800 - 4200 throughout summer.

When bulls will return?

As you can see from the chart above, there is no momentum or market width yet, as most of the companies in the index continue to trade below their 200-day moving averages. Therefore, for a qualitative reversal, a synchronous signal of an increase in the width of the market with an upward breakdown of the resistance zone around 4300 is needed. Most likely, the market will be able to form such a formation in the fall, after the summer "sideways". Nevertheless, the current prices are already very attractive to pick up a few stocks on a discount. It is also worth paying attention to the debt market, since US Treasury yields have excellent chances of correcting against the background of lower inflation expectations. In this regard, buy bonds.