This Still Isn’t A Buyable Bottom For Stocks

 | Jun 22, 2022 02:18AM ET

h2 There’s Hope In The Market But The Technical Outlook Is Gloomy

Equities began the week with a strong bounce and the S&P 500 gained more than 2.6% by midday. As strong as the bounce looks, however, we still don’t think this is the energy sector .

If we’ve said it once, we’ve said a dozen times that higher oil prices in the face of rising demand are driving windfall profits in the energy sector that should be sustained into calendar 2023 at least. The fundamental picture in the energy sector is dwindling capacity and supply and that can only lead to higher prices. The takeaway is the energy sector should do well this year and the better they do the worse it is for every other sector.

h2 The S&P 500 Broke Out Of A Downward Sloping Channel/h2

We’ve been tracking several technical conditions in the S&P 500 that suggest a downward bias in price action if not a continuation of the downtrend that began earlier this year. The major pattern that is dominating the price action is a Head & Shoulders Reversal that should take the S&P 500 down to the 3480 level and it is still well above there. The most recent pattern we’ve been tracking is a downward sloping channel that demarcates the downtrend that began at the end of 2021/beginning of 2022. That channel should take the price down to our 3,480 price target on its own but the price action broke out of this channel to the downside. In this scenario, we see the S&P 500 decline accelerating, not reversing, and moving quickly down to the 3,480 level if not surpassing it.