Who Knows?

Everyone is looking for some kind of definitive answer to where the bottom of this market is. The trick is, you don’t know until it’s over.

Some signs look positive. Despite the generally crappy news out there constantly, the pricing behavior of the S&P 500 shows some signs it’s finding support.

It’s been a month since we printed the intra-day low of the year on June 17th. Gas prices (and other commodities) are softening. The dollar is strengthening. And the Fed doesn’t meet until next week.

The probability the Fed raises rates by 1% has gone up. But it’s not a forgone conclusion. With the CPI print as high as it was last week (9.1%), there’s some pressure there. Interesting enough though, the yield curve remains inverted in some areas.

This mixed bag of data suggests there are still economic headwinds. (In fact, it’s likely we’re already in recession and just don’t have the formal numbers in hand to confirm it.) The question is, how much of this is priced into this market?

If a recession is inevitable (probably), then the next question is, how bad? Given the massive amounts of money printing out there, many are calling for the sky to fall. But will it? Unlike 2008, the banking system outside of the Fed looks fairly stable. The job market, arguably, is overheated, not too soft. So perhaps the market is sensing there is some room to improve here.

The tell will likely come next week when the Fed shares its thoughts. It’s behind (given). The question is, will they continue to forecast and guide, or must they take more significant steps now to get back inline with their projections?

For this week, it looks like the trend is positive. In fact, a test of the 3950/4000 on the S&P500 is quite possible looking at the general trend of support and resistance-testing lately. It would take a close below 3763.99 to negate the positive trend this week.

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