Major Market’s Risk-On/Risk-Off Report – Seeking Alpha

Close up shot of breaking wave, Broome, Western Australia, Australia

Abstract Aerial Art/DigitalVision via Getty Images

Kirk’s Intro: What was possibly the first leg down in a broader bear market has room for a rebound rally to about 4000 on the S&P 500 which we discussed recently. That said, the Fed is tightening and the mood is sour, so any rally could be short and minor.

We still expect a broader correction on the S&P 500 to the middle 3000s or lower sometime this year. The two main considerations are what does the Fed consider:

  • acceptable inflation;
  • enough air out of the stock market.

My base case scenario is the S&P 500 (SPY) (VOO) reaching the lower 3000s.


SPY (Kirk Spano)

Here’s Shooter’s AI-assisted Elliott Wave analysis and quick thoughts.

SPY Risk On – Sort Of

If this oversold market has a rebound, we are targeting the 429 to 447 region on SPY. This is what we consider a likely, but not extremely likely, move. Unless you are a very nimble trader with some technical skills, you’ll want to ignore this and just take it as instructive.

Last week we had three 80% up days in a row (W/T/F). We also now have the exact same condition that we had heading into March 18, 2020. A 9/13 Demark Alert and three 80% up days in a row? We also experienced that on a total of five other occasions, and we continued to rally. So, that $429-447 is viable and consistent with both the Elliott Wave count and the RSI structure here.

Somehow, I’m not a believer! The count is still projecting some additional downside. If we do rally from up here, we are going to get a huge correction when we do top.

SPY Monthly EWT

SPY Monthly EWT (Shooter Henderson)

SPY Weekly EWT

SPY Weekly EWT (Shooter Henderson)

QQQ Risk-On – Sort Of Again

The Nasdaq 100 (QQQ) appears to be responding to the change in yields. Last week was the second week in row Mortgage rates declined. It’s still a broken count because it did not file the lower bound at $271.05.

I won’t be surprised if there is a shallow rebound, but a continuation to around 272 on the Qs seems inevitable. If the Fed is a little nicer, that could be a great buy or at least the first scaling-in point. There is definitely downside to about 225.

Like other forms of technical analysis, Elliott Wave always finds equality (or equilibrium pricing) sooner or later. The question here is when and where? In volatile markets, we need to update our counts weekly for position traders – investments measured in quarters and years (more often if you are day trading or swing trading).

QQQ Monthly EWT

QQQ Monthly EWT (Shooter Henderson)

QQQ Weekly EWT

QQQ Weekly EWT (Shooter Henderson)

TLT Risk-On!

The iShares 20+ Year Treasury ETF (TLT) count has switched to Primary Wave Setup Long and has put in a 90-minute trigger. Theoretically, it measures to $126 for intermediate wave one. My only qualm is that RSI confirmed! It’s not glaring but it’s there, which implies at least one more low. This is also the reason the Nasdaq rallied!

TLT Monthly EWT

TLT Monthly EWT (Shooter Henderson)

TLT Weekly EWT

TLT Weekly EWT (Shooter Henderson)

As Kirk discussed, there are two scenarios for TLT and equities. We don’t know which one it is yet. He called JPow, but got the answering machine.

For his part, Kirk has been telling subscribers the Fed had to back off by September to avoid crippling the movement of supply chains back to America and energy development. Sure enough, the Atlanta Fed President said they might back off in September.

Frankly, it’s amazing to me he’s ahead on this stuff so often. Our charts were showing it too, though, and that’s what good charts do, they tell you to look for what is really going on.

Here’s Kirk’s TLT quant-based chart with a couple of notes:

TLT Monthly Quant

TLT Monthly Quant (Kirk Spano)

You’ll see our ranges are extremely similar. While buying TLT right now is tough, if we get pricing near the bottom of both of our zones, that would likely be a max pessimism spot to buy.

Kirk’s Closing Investment Thoughts

Back and forth on articles is hard, but sort of fun. I think we nailed our thoughts, but in case we didn’t here’s the summary.

The bear market isn’t over.

Nimble and experienced traders can trade the mini-rallies, but most folks shouldn’t.

We both see the S&P 500 at middle to lower $3000s sometime this year.

There is an elevator shaft scenario that could send stocks much lower. We hope it doesn’t happen, but acknowledge the possibility in our ongoing risk management.

We hope that helped out with your thinking through these markets.

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