The Markets Strike Back (At Least For Now) (Technically Speaking For 4/25)

Apr. 25, 2022 5:34 PM ETSPY, QQQ, IWM, DIA13 Comments
Hale Stewart profile picture
Hale Stewart
10.57K Followers

Summary

  • Beijing may be the next big Chinese city to be locked down.
  • Estimates for 1Q22 GDP are low.
  • The markets rallied into the close.

Bull and Bear Symbol with Stock Market Concept.

undefined undefined/iStock via Getty Images

First Shanghai; now Beijing:

China's coronavirus outbreak worsened as rising cases in Beijing sparked jitters about an unprecedented lockdown of the capital, with policy makers racing to avert a Shanghai-style crisis that's already wrought havoc on the financial hub.

Worries that the country's strict adherence to Covid Zero will further damage the economy dragged down stocks to oil and iron ore on Monday. It's also sparked a bout of panic buying as Beijing residents -- fearful of being caught unprepared in the event of a citywide shutdown-- rushed to stock up on food and other supplies after the government announced mass testing plans and put some areas under lockdown.

Anecdotal comments about how Shanghai's lockdown is slowing global activity are littering financial reporting. Should Beijing face a similar lockdown, the problem will only grow.

Morgan Stanley is now arguing for a bear market in the S&P 500:

The S&P 500 is about to drop sharply, Morgan Stanley's Michael J. Wilson warned, as investors struggle to find havens amid fears of a recession and aggressive tightening by the Federal Reserve.

"With defensive stocks now expensive and offering little absolute upside, the S&P 500 appears ready to join the ongoing bear market," said Morgan Stanley strategists in a note on Monday. "The market has been so picked over at this point, it's not clear where the next rotation lies. In our experience, when that happens, it usually means the overall index is about to fall sharply with almost all stocks falling in unison."

As I noted in my weekly market wrap-up, the markets' internals are negative across the board.

This week, we get potentially market-moving news on Thursday when the BEA releases the first estimate of 1Q22 GDP. As of now, the markets are expecting a weak report:

Atlanta Fed GDP Now

Atlanta Fed GDP Now (FRED)

The Atlanta Fed is projecting growth of just over 1%. That estimate has been at that level for the duration of this quarter's forecast. The Blue Chip consensus isn't much better, with the top estimate at ~2%.

New York Fed

New York Fed's GDP Nowcast (New York Federal Reserve)

The New York Fed is slightly more bullish at 3.79%.

Let's take a look at the charts:

1-Day SPY, QQQ, DIA, and IWM

1-Day SPY, QQQ, DIA, and IWM (StockCharts)

There are a few reasons why the above charts are positive. First, the indexes reversed course during the trading session. And they did that after a very bearish set-up at the end of last week. Second, they all closed at or near session highs.

5-day SPY, QQQ, DIA, and IWM

5-day SPY, QQQ, DIA, and IWM (StockCharts)

On the 5-day charts, prices broke through support to begin a new trend. However, the prices are still below the 200-minute EMA.

Let's place this in a somewhat dour perspective. Nothing has changed in the macro-environment: the Fed is still aggressively tightening, the credit markets are seeing higher rates, and the 1Q22 GDP estimate won't be that great. Add in inflationary pressures and the war in Ukraine and you have a recipe for downward surprises.

We need at last a few more days of this counter-rally to take it seriously.

This article was written by

Hale Stewart profile picture
10.57K Followers
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (13)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.