This article was last updated on May 20, 2022
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My casual read through of posts on the Twitter-sphere shows pretty much everyone and their brother calling for a bounce at the S&P 1250 level (we’re now in the 1270 area). I don’t consider the sudden onslaught of posts about 1250 to be of any great brilliance. We’ve talked about this area for some time (back when the S&P was up at 1340). Those who are now jumping on the 1250 bandwagon are tacitly admitting that they were unprepared for this little market dip and are just coming around to realizing that by golly stocks can come down.Face it, the QE fuel is about to run out. The $60 bln final push over the rest of the month is priced in. The uptrend started last September is over. Choppy times are ahead until the market can get a smell of a new QE being brewed in the Fed kitchen. I’m in the camp betting that likely negative GDP in the third quarter, which would be released in October, along with very unsettled markets would give credence to the idea of a late year QE booster — and maybe sooner if unanticipated events occur during the summer months.
As highlighted in the chart over the weekend, the 1210ish area is of greater concern. In other words, this newsletter was on to 1250 a while ago and now it’s time to move on. Yes, I do think that 1250, the simple and easily recognized 200 day moving average, should provide a modicum of support, but playing this market is about looking further ahead.
Having said all that, let’s look close up at risk appetite and the bashing of Chinese related Internet plays. Let’s take $Sina as but one example. This chart shows a massive exodus out of the stock.
Sina had been a stalwart name in the overall market runup. The week ahead will be an important tell as to how much of a bounce will come for what is a sharply over sold name. Notice the recent spike in volume; really capitulation like. This is one to keep an eye on to gage the market’s risk appetite. Does this name attract some new and real money flow (not just quick long scalpers), or does it further die?
As for today and this week. The natural tendency has been for the market to bounce after bouts of selling. We’ll see if the bulls can regain their composure. Don’t forget it’s quarterly quadruple witching week. As market makers can dump short futures positions as players roll out of the soon to be expired June calls, the bias can be a positive one for stocks ahead of this Friday’s expiration. But this rule doesn’t work all of the time, especially when the market is in a downtrend. We’ll be better gage the activity later in the week once we get data on the open interest in the June OEX puts and calls. Stay tuned.
Also remember, the week ahead features plenty of economic data (from the inflation numbers to housing data and even a Ben Bernanke speech.
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