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“Beneath The Surface… It’s A Mess” – S&P 500 Rejects Key Technical Level

Courtesy of ZeroHedge View original post here.

After the now ubiquitous panic-bid vertical lift at the cash-open, US equity markets have been a one-way street lower this morning…

The S&P 500 failed to hold a key technical level this morning, unable to hold 4500…

That is a key positioning level for options traders (as SpotGamma details, light, but supportive dealer flows appear over 4500, and if the VIX holds a rejection of 4500 and/or VIX above 20 signals a retest of the 4450 line…)

Crucially, 4500 is approximately the level of the S&P 500′s 200-day moving-average, which has also been rejected this morning….

But, under the surface the situation is even worse.

As Bloomberg notes, for 21 consecutive weeks, more stocks have hit new 52-week lows than their respective highs on the New York Stock Exchange and the Nasdaq, according to technical-analysis service All Star Charts.

That’s the longest such streak since April 2009 – the aftermath of the financial crisis.

“During a selloff, new lows tend to peak. Then in a rally, new lows should fade and new highs should pick up, but that’s been missing,” said Willie Delwiche, investment strategist at All Star Charts.

“Fewer stocks are making new lows compared with a month and a half ago, but we need to see more shares hitting new highs to have confidence that there could be a sustainable rally.”

Problematically, as Ed Clissold, chief U.S. strategist at Ned Davis Research, notes, is that sector leadership is dominated by defensive groups. Since the last FOMC meeting (in March), “Defensive” sectors have dominated “Cyclical” and most notably there has been a significant divergence between the two since the end of the March meltup…

Investors have dumped economically sensitive stocks for so-called safety stocks such as energy, utilities and REITs. That’s raised questions about the stamina of the S&P 500’s latest leg up as investors remain concerned about the trajectory of the global economy.

Current leadership trends are closer to “late cycle” behavior, or when economic activity reaches its peak, rather than “early cycle,” when there is generally a sharp recovery from recession and the start of major up legs within bull markets, Clissold and Thanh Nguyen said in a note to clients.

“Beneath the surface, leadership trends are even more of a mess,” Clissold and Nguyen said.

“The stock market is unlikely to break out of its trading range without decisive leadership.”

The sector leadership reflects cross-currents from high inflation, commodity shortages, interest-rate hikes from the Fed, an earnings deceleration and lingering issues from COVID.

STIRs are now pricing in almost 10 more hikes this year, and even though the subsequent rate-cuts (in the inevitable recession that the hawkish moves trigger) are shifting back dovishly, do we really believe the stock market is pricing in that level of tightening?

The market is now fully pricing in a 50bps hike in both the May and the June FOMC meeting (and pricing in a 75% chance of a 50bps hike in July too and a 50% chance of a 50bps hike in September!)…

Finally, we note that SpotGamma highlights the VIX – trading around 20 – and suggest that traders would not aggressively sell volatility until the FOMC (5/4) and/or some resolution on the geopolitical front.


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