Overnight China reported really negative growth numbers with industrial production, fixed asset investment, and consumer spending all growing at rates well below projections. Economists on Wall Street (and its equivalent in Tokyo, etc.) issued new forecasts for economic growth in China of 4% or 3.5% or 3%. Far below the 5% unofficial growth target from Beijing.
But U.S. stocks initially dipped on the news but by noon the major indexes had moved into the black. The Standard & Poor’s 500 closed up 0.33% for the day. The Dow Jones Industrial Average ended 0.49% higher. The NASDAQ Co opposite gained 040% and the NASDAQ 100 added 0.75%. Only the Russell 2000 small-cap index ended the day down and that by just 0.12%.
Some days, and I think this is one of them, you can tell a lot about market direction by how stocks react to bad news.
I still believe we’re in a Bear Market rally in a continuing Bear Market. And as I posted over the weekend, I think we’ve moved into a FOMO (fear of missing out) rally that’s a step closer to the top in this Bear Market rally. But I don’t think we’re at the top of this Bear Market rally. Not yet.
Although I would be cautious here because it is extremely difficult to pick the top in a Bear Market rally.
Technical levels can give us some guidance here.
The S&P 500 closed today at 4297.
The folks at iVolatility.com argue that the market is completing a head and shoulders top.
Resistance levels stand at 4307 (the May 2 high) and at 4329 (the 200-day moving average.) The index did break through major resistance at 4177, which represented a 50% retracement from the market lows.
In the very short term, the expiration of S&P options on Friday, August 19, could stall the market for a while.
But after that the target level suggested by the head and shoulders pattern is at 4563.
I’d use an approach to that level to plan another tranche of sells ahead of what I still expect to be a market downturn on disappointment when the Federal Reserve doesn’t start to cut interest rates in early 2023 as the market now hopes.
What remains out there is the reaction to Fed minutes from the July meeting, due this Wednesday, and to the 50- or 75-basis-point interest rate increase at the central bank’s September 22 meeting.
More on how to invest in this FOMO rally in my next post Tuesday.
