2022 bear market bottom part 4 : interlude – the twist and turn
<source : global macro investor GMI Sep 2022 cover>
As the picture and title implies, Yes the market (decisive) turn is getting near, very near. ( it may already be happening, but even if it is happening , it still doesn’t mean we are out of the wood yet ). A lot still depend on the following factors in the near term, before the turn is confirmed.
1) 2nd half of September ( historically speaking , a known bearish period, )
2) CPI data release on Sep Oct ( need I say more ? )
3) Fed rate hike projection in September meeting
4) Technical importance of 3900 in SPX
At the end of the articles, I will give my personal judgment of probability of Timeline probability of the major rally.
1) 2nd half of September
<Seasonality chart> Source : stock trader almanac
Average path of September seasonality shows that it’s the worst period for US equity market. And in Mid term election year, fare far worse. There are a lot of different color line, but the one I think is most relevant are purple line.
As for why it happen, 2nd half of September period where big player are doing their portfolio rebalancing. So beware of the treacherous September period , especially 2nd half of September.
2) CPI data on September, and October
CPI has been the centre of attention for everyone , so tomorrow and mid October CPI data will cause the market go up / down significantly. Personally feeling, Sept and Oct CPI will further go down, because oil&gas price has gone down, together with housing, used car price , while rate of change in price of other goods has slowed considerably.
Check out my previous articles for the info.
3) Fed rate hike projection in September meeting
Market has fully price in the 75 basis point rate hike for September 21st meeting.
Sep : 90% probability of 3-3.25% ( 75 basis point rate hike )
Nov : 80% probability 3.5 – 3.75% ( 50 basis point rate hike )
Dec : 70% probability 3.75-4% ( 25 basis point rate hike )
<Fed rate projection Jun 2022>
Previous June meeting projection shows the terminal rate projection of 3.75 – 4%, if fed shows an updated projection of 4.25 – 4.5% or higher in their September 21st meeting, there could be some ( a lot ) volatility to the downside ( whether it will breach 3900 level or worse case scenario, lower than 3636 is anyone guess )
4) Technical importance of 3900 level ( and 3636 )
<SPX>
3900 is 61.8% Fibonacci retracement of the market recent rally ( 3636 to 4320 ) , and previous support/resistance level. If this is broken 3636 is next. So 3900 and 3636 is the 2 S&P level that I will watch closely.
So in terms of timeline, I will follow closely the
1) September 13th post CPI data release
2) September 21st post fed meeting
3) End sept – early oct ( has it test/break/hold above 3900 or 3636 level by then, after expected market volatility/downturn 2nd half )
4) October 13th meeting post CPI data release
Best case scenario, I believe somewhere between 4th – 13th oct, market would be out of woods. ( assuming 13th September CPI data further lower to 7.6% and core-CPI lower to 5.5% )
Worse case scenario, if CPI remains the same at 8.0 - 8.1, core CPI remain at 6%, & fed projects a higher terminal rate of higher than 4.5, then 3900 and 3636 could be in danger, and maybe we will have to wait till end October and early November to bottom out.
Stay tune for further update.
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