Market update: technical level defended, smart money resilient, short term bullish on S&P500.
In our first market update on the first signs of market weakness, The US Market Sell Off. Is this the end? dated 5 Feb, we said the there "is still room for a further drop".
Check. It did.
Next, after a second drop in the S&P500 in March 26, in our next update Intermarket Analysis: Trump Tariffs & Expensive Markets. Remove chips and buy defense., we said "To summarize, the bull market is still intact as it is not proven that Trump's tariffs is sufficient a catalyst to usher in a bear market yet. But that doesn't mean that the market won't take this as an excuse for a bigger correction... If the trigger point at 2588 is broken, the correction is not over and may go to 2500 and then to 2400. We think it might be a good idea to be defensive until the correction has blown over."
We said not to go bullish unless we know that technical line is successfully defended.
Check: It did today.
In other words, after listing the potential risks out there, we said to use 2588 on the S&P 500 as the line in the sand, a successful breakdown from this level will confirm those risks that are now still possibilities. Evidence points to a successful defense of the line (to be confirmed this week).
Today, the markets attempted to break this level and posted a good recovery intraday. We think that this bullish reaction on the same day China announced tariffs on the US, combined with other indicators like the smart-dumb money spread being so far, points to a short term recovery of prices.
Unless some radically new bad news occurs, like China posting even more tariffs, or more bad news on tech (FB, then Amazon... how about Twitter next?), I expect a short term recovery of prices.
However, as far as cycles go, we already have historical unemployment rates and business sentiment. This does bode well for spending and cooperate earnings, but also realize that bull market tops don't usually occur when the macro indicators are negative. They occur when the indicators are at highs, the the momentum starts to shift.
Stay safe all!