Bear Market Bottoms
The pandemic era rally cut in half
Cut in Half—
The pandemic fueled, free money rally was cut in half last week.
Ten months of a declining stock market with two convincing rallies throughout have made for an almost numbing experience. How much lower can it go? I think this is the subject in the minds of many participants.
This weekend article frames some of the market headlines around bear market bottoms, provides key levels of support and resistance to monitor over the coming months, and reiterates my near term thoughts on a relief rally.
Scenario Jamie Dimon— another “easy 20%” drop
Last week JPMorgan CEO Jamie Dimon made headlines— offering markets his perspective on the markets position.
An easy 20% drop— 30% in a more severe recession. The “easy 20%” scenario trades the S&P 500 just below 3000.
This is a month after the FedEx CEO warned of a worldwide recession. Remember— these CEO seats have access to very specific real time information.
Scenario 1969—
Active readers will know this scenario—the environment of inflation and central banks raising interest rates is a match against the current day market, and the charts share similarities in shape, magnitude, and duration. (Article Link)
The market decline of 1969 concluded with the S&P 500 down 37%— a similar outcome in the current market ends at 3033— in the same range as Jamie Dimon’s easy 20%.
Key Market Levels— Looking Down (Support)
The levels below trace back to areas that mark a time where price was range bound, or represent a visual pivot.
3580 — Sept 2020 through the US election period, Nov 2020
3400 — pre-pandemic high, Feb 2020
3250 — low range of consolidation Sept 2020 - Nov 2020, and pivot in June 2020
3000 — upper consolidation range July - Aug 2019 **closest fit to 1969 analog & Dimon’s easy 20%**
The Last 3 Weeks
Over the last three weeks the S&P 500 has mostly traded around the June low (3630)— and last week settled towards 3550— an area of support highlighted at the start of the month (Article Link).
The financial media headlines currently have a negative tone— a repeating cycle of inflation, recession, stocks going down, bonds imploding, currency risks and rising interest rates across the globe. It is my speculation that if the market wanted to immediately go lower— short participants & those capitulating long would have done so on this most recent news cycle accelerating the decline. Alternatively— the duration and bear rallies have created a numbness where this is the new market normal.
I continue to hold the outlook that a relief rally towards 3900 is the intermediate step before the market resumes the greater decline. This idea remains on a short leash, and closing daily prices below 3500 reduces the probability of any relief rally progressing as high as 3900.
Next week the market heads into another earnings season—
Key Market Levels— Looking Up (Resistance)
The overhead resistance on the S&P 500 comes from prior areas of support and visible pivots.
3900 — Feb - March 2021 upper consolidation range, May 2022 lows
4175 — June 2022 rally highs, Feb - March 2022 support pivot
4375— Sept 2021 lows, Jan - Feb 2022 pivot
4600— March 2022 high, December 2021 lower range
Year End Speculating
Speculating into year end— I anticipate a relief rally to take hold towards 3900 and then resuming the greater decline towards 3300 by year end.
At 3900 I anticipate many participants and the media headlines to be convinced that the bear market has concluded— scenarios suggesting further downside will become unpopular opinion.
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Anything Else Interesting?
Yes— this Bank of America Market Bottom Check List.
I found the similarities between bear market bottoms interesting. Fed cutting rates (prior 12 months)— we have good insight that the next Fed meeting will result in another rate hike. Interpret the data how you wish— for me, the bottom does not feel in.
Disclaimer: I am not a financial advisor— this article is not financial advice or a recommendation for any investment— The content is for informational purposes only and to ignite the brain neurons.