After a busy week for central banks, nothing has changed to alter my bearish view on equity markets. I continue to expect to see new lows for the year in the major European and US indices. He only needs to drop another 4%-5% to get it.
It is true that the markets seem a little “oversold” after the strong movements this week, so a small rebound may be warranted. But the bears are likely to continue to hold their ground in a bearish macro environment.
They have broken another support zone this week around 11,750. The area around this level is now the most important short-term resistance zone to defend. As long as the index holds below here, the path of least resistance would continue to be down towards the June low of 11,036.
The lower lows and lower highs, as well as the downward sloping 21 and 200 day moving averages, objectively tell us what we need to know. Therefore, there is no doubt that the trend is down right now.
For now, and as I have been insisting, stocks remain stuck in a downtrend. Investors this week dumped stocks along with the , the , and almost every other currency as they watched yields continue to rise after an avalanche of central bank action.
Among them, the US Federal Reserve announced a 75 basis point rate hike and signaled that it would continue to raise rates aggressively until inflation is brought back under control. In response, bonds plunged, causing bond yields of all maturities to move higher. US bond yields topped 3.7%, making low- and no-yield assets such as some tech stocks and the , even less attractive to yield seekers.
In addition to growing concerns about rising interest rates and inflation, the energy crisis continues to weigh on the European economy, as the Russian invasion of Ukraine drags on after Putin announced the sending of military reservists to Ukraine as part of a “partial mobilization” of its forces. Today’s soft European PMI figures underscore these concerns. In addition, there are growing concerns about the health of the Chinese economy, which has been held back by the government’s zero Covid policy and global economic weakness amid mounting price pressures.
Given these macro concerns and the technical outlook, I wouldn’t bother buying the dips until the charts tell us otherwise. For traders shorting indices, it’s been a good year. This trend is likely to continue until something fundamentally changes.
Disclaimer: The author does not currently own any of the instruments mentioned in this article.