Is this the end of the S&P 500 bear rally?
Have we just seen the end of a bear market rally? Maybe, maybe not. But it looks like a major swing has formed.
Stock market volatility was high in yesterday’s Asian and US sessions, which saw a reversal in the fortunes of the Japanese yen and the US dollar following Wall Street’s decline at the close on fears that the US is already in recession.
Initially, the yen weakened and lifted USD/JPY more than 250 pips as the Bank of Japan did absolutely nothing, catching hawkish pre-emptive rates by surprise. Yes, when US retail sales fell to a 12-month low at -1.1% m/m, and then industrial production and manufacturing fell by -0.7% m/m and -1.3% respectively, this similar to “Happy New Year”. is a distant memory, and the bears come out of hibernation.
The Dow Jones led Wall Street (-1.8%), followed by the S&P 500 (-1.56%) and the Nasdaq (-1.3%). It also sent the dollar down as traders bet on the Fed’s lower terminal rate as the USD/JPY lost much of its previous gains. The Australian dollar (AUD), Canadian dollar (CAD) and crude oil also fell as recessionary fears dominated sentiment.
S&P 500 daily chart:
Source: Tradingview, Stone X
The S&P 500 stalled at an interesting time and what could be a major high in its worst session in 21 years. A large bearish engulfing candle formed after an intraday false break of the 4000 level, trend resistance and the 200-day moving average. .
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Also note how the S&P has already struggled with the 50-day moving average in August and twice in December. Volume has also been above average, suggesting bearish confidence, and OBV (total volume) has been trending down since November despite the S&P 500 rally since October, suggesting bearish volume prevails.
Have we just seen the end of a bearish rally?
Maybe, maybe not. But it looks like a big swing has formed
Our bias remains bearish below 4016 with initial target at 3800.
The bears can either break out of yesterday’s low or try to mix in the rally with yesterday’s bearish candle (this potentially increases the reward/risk ratio).
If they are not convinced that this is the end of the bearish rally, the bears may leave the bearish target open and make do with a wider stop as it moves lower to deal with the inevitable ongoing pullback of the road.
Matt Simpson, FOREX.com » Official site
Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.