What to expect in the US market after the growth on Friday?
First, we once again resolve our targets for a 7-10% market rebound. This is about 4150 - 4250 in S&P 500 futures.
Secondly, if by that time inflation really starts to decline, the economy does not slide into recession, then the rebound will turn into a new phase of growth - then the patients' goals will be higher.
We still estimate the probability of such a positive scenario at 40%: after all, rising interest rates, rising prices, supply disruptions due to lockdowns in China and military operations in Ukraine are significantly slowing down economic growth. But everything can change - one should not underestimate the optimism, penetrating power and ingenuity of entrepreneurs from different countries, objects that were not even such tasks could be solved.
Thirdly, the move up can be very fast, as is always the case in a bear market and as was the case in March 2022, for example. The negative gamma of market makers, a large number of shorts and underloaded stock portfolios only add to the chances of sharp takeaways.
Fourth, the sharp upward movement of the market does not raise that all 7-10% of the market will rise in a straight line. Volatility is still around 30%, there are still a lot of problems in the economy, so with every surge up, there may be many who want to quickly sell their shares while they rebounded.
So it was in the same May 2021, which we recently remembered. On the supply data, the market collapsed, then it was powerfully bought out - we wrote about this. Almost to the bare minimum. And only then the growth became more stable.
An unclosed gap on the VIX chart (chart break from top to bottom - see screenshot) also tells us that volatility should try to return to levels around 32 in the near future, which is due to a market pullback.
What will this rollback be? Maybe on the weak economic data from China, which will be released this weekend. Maybe on the fact that India banned the export of wheat, maybe someone from the Fed will say something rude. We do not know. But it is not important.
The important thing is that this possible rollback should not confuse anyone. We do consider that the reversal mechanism has been launched, and now only a sharp paradigm shift in the economy can stop this process. We are not waiting that yet.
Secondly, if by that time inflation really starts to decline, the economy does not slide into recession, then the rebound will turn into a new phase of growth - then the patients' goals will be higher.
We still estimate the probability of such a positive scenario at 40%: after all, rising interest rates, rising prices, supply disruptions due to lockdowns in China and military operations in Ukraine are significantly slowing down economic growth. But everything can change - one should not underestimate the optimism, penetrating power and ingenuity of entrepreneurs from different countries, objects that were not even such tasks could be solved.
Thirdly, the move up can be very fast, as is always the case in a bear market and as was the case in March 2022, for example. The negative gamma of market makers, a large number of shorts and underloaded stock portfolios only add to the chances of sharp takeaways.
Fourth, the sharp upward movement of the market does not raise that all 7-10% of the market will rise in a straight line. Volatility is still around 30%, there are still a lot of problems in the economy, so with every surge up, there may be many who want to quickly sell their shares while they rebounded.
So it was in the same May 2021, which we recently remembered. On the supply data, the market collapsed, then it was powerfully bought out - we wrote about this. Almost to the bare minimum. And only then the growth became more stable.
An unclosed gap on the VIX chart (chart break from top to bottom - see screenshot) also tells us that volatility should try to return to levels around 32 in the near future, which is due to a market pullback.
What will this rollback be? Maybe on the weak economic data from China, which will be released this weekend. Maybe on the fact that India banned the export of wheat, maybe someone from the Fed will say something rude. We do not know. But it is not important.
The important thing is that this possible rollback should not confuse anyone. We do consider that the reversal mechanism has been launched, and now only a sharp paradigm shift in the economy can stop this process. We are not waiting that yet.
It happened yesterday and today.
We think that's it. This is the base scenario.
As a worst-case scenario, we consider the decline of the S&P to 3800-3780, which is 50 points below the previous bottom.
With such a level of fear as it is now, the stopping distance of the market can easily be 1-2%.
But 3800 is a very powerful level that can reverse panic.