The S&P 500 Still Has Plenty Of Downside
Andrew Lane | Jun 29, 2022 02:52AM ET
US markets have followed a well-defined rising parallel channel in the last decade. When we look at the weekly chart for the last ten years, the Covid crash of March 2020 and the next 20-month rebound rally show the anomalies on the charts. The Covid crash was over very quickly; it could be described as a deep correction before the bull market continued.
The rebound shows the artificially Fed-induced rally following the announcement of QE and dropping interest rates in late March 2020 as parabolic and not in line with the previous channel.
This chart presents two interesting facts: The rally was not based on fundamentals (unemployment was at record highs, lockdowns across the globe, GDP set to decrease, to name but a few), and the S&P500 still has a long way to go until it sits back in line with the ascending channel.
The three horizontal lines drawn show the support zones for major tops and bottoms, with the channel representing 3200-3600 as the extremes. This would mean a possible downside target of around 10-15% of where we are now before value-buying kicks in.
The S&P is in a bear market with fundamentals that reflect it. A recession is likely already underway in a rising interest rate backdrop and a slowing economy. Stock markets are not a safe place to put your money, and until The Fed reverses course, and the macro outlook changes, this isn’t likely to alter.
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