There are two schools of thoughts regarding the current market status:
Several things currently suggest a follow-through rally is possible, encouraging the "bulls" to declare the "bottom is in."
- Extremely negative investor sentiment.
- High cash levels
- Low equity positioning by fund managers.
- Equity fund flows are strong.
- Stock buybacks remain strong
But other issues suggest this rally may be limited to the upside, keeping this a more tradeable rally.
- Liquidity that drove the rally from the 2020 lows is reversing.
- The Fed is hiking interest rates
- Inflation is hot
- Earnings will slow along with economic growth.
- There are a lot of "trapped longs" that need an exit.
No one knows for sure of course which way the market is going. I'm inclined to believe the latter that the market may be setting up a big trapped long, enticing as many people into it as possible before making another major strike! 🙄
Technically, S&P has bounced above its multi-month downtrend line as well as several major resistance lines, a quite bullish achievement. But it has also been quite overbought and quite likely it will come down to test its downtrend line around $4250ish in the next week or two. I definitely won't chase the market at the moment but trading more to the downside. 😜
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