The bearish stock market has officially started to raise its head in the United States as the S&P 500 broad market index dipped to 3809 points, or 20.9% below the opening level of 2022. This 20% downside margin is considered to be a division point between a bullish and bearish market.
On the flip side, the S&P 500 index bounced to the nearest resistance level at 3930 points but failed to go up further. There were no clear reasons for such a bounce, as it could be considered to be a purely technical movement. On the contrary, however, there are plenty of reasons for the downside. The European Central Bank’s (ECB) President Christine Lagarde suddenly announced possible interest rate hikes in July and September.
The bearish market in the United States, rapid interest rate hikes worldwide, blistering inflation, high energy prices, and a strong U.S. Dollar are painting a rather impressive picture. We may expect this autumn to be extremely “hot” for the global economy and markets. With such a backdrop only mistakes made by the Fed or other central bankers may not only prompt soaring inflation but a record turmoil in the markets.
However, we may expect stabilisation or even a rebound of the stock market this summer after a drop in May. The S&P 500 index may dive to 3550-3650 before the Fed’s meeting in June and perform a rebound in the summer. This would not change the overall bearish sentiment but may create the impression of a dull-scale upside for U.S. stocks. These actions would only fuel a sharp downside in September. So it is better to wait for the S&P 500 to hit the 3550-3650 landmark and wait for this final downside in September to make any moves. However, anyone who is interested in short-term speculations may try to use the summer upside ride.
This week it is very possible that the S&P 500 index could decline after Mrs. Lagarde shocked markets with possible interest rate hikes, business activity in G7 countries is declining, and the fact that Fed’s Chief Jerome Powell is likely to continue his hawkish rhetoric as confirmed by the FOMC Minutes. Technically, the market is ready for a downturn. The S&P 500 index has entered an aggressive downside pattern with targets at 3550-3650 points. New entry points for deals without significant risks can barely be seen at the moment.
Brent crude is stuck within the $112-115 per barrel area as warfare in Ukraine continues and EU nations are still debating a ban on Russia’s crude. The base scenario for Brent crude to reach $160-180 per barrel in June has not changed. On the contrary, it is now in the active stage as crude prices continue to test the upper margin of the resistance area of $115 per barrel.
Gold prices reached $1860 per troy ounce on the weakening Dollar. But they only have a few weeks left to hit the $1940 - $2000 target.
The Greenback is rolling back as EURUSD reached the first upside target at 1.06500-1.08000. The Euro may move up more aggressively this week inside the upward pattern. So, any corrections to the support level at 1.05400-1.05600 could present good buy opportunities with the target at 1.07000.
GBPUSD hit the primary upside target at 1.26000-1.27000. Thus, long positions opened at 1.23300-1.23500 should be closed. For any new, long positions to be opened, a deep correction to 1.24200-1.24400 is needed.