The S&P 500 broad market index has reached the target of 4100-4200 points, while USDJPY, a collateral indicator of the U.S. stock market, is seen to be flagging under expected elevated volatility. A rebound of the U.S. stock market on Monday was primarily made by retail investors. This may signal a false direction of the stock market, which is directed mostly by institutional investors.
Last week the commodity market signaled an inevitable cyclical downturn in the United States and a possible 40-50% drop of U.S. stocks over the coming two to three months. But last Friday signs of early possible volatility spikes emerged. The downside pattern of the S&P 500 turned out to be even more aggressive as the index fell below 4290-4300 points. A new target of the downslide was set at 4100-4200 points, but it was achieved on Monday as the index plunged to 4202 points. Such an aggressive drop, along with other downside drivers, may extend this drop to 3850-3900 points this week and even further down to 3400-3500 points. So, the current movement of the S&P 500 index may become the first of a two wave cyclical downturn which has been signaled by the commodity market.
This scenario cannot be univocally confirmed as we have a massive block of 180 corporate reports this week, including FAANG stars Meta (Facebook), Amazon, Apple и Alphabet (Google) that may support the entire stock market. On the other hand, U.S. Q1 2022 GDP data, that is to be released this Thursday, may present a horrible slowdown of the American economy to 1.1% from 6.9% during the previous quarter. Blistering inflation of 8.5%, along with such a slowdown, is looking monstrous. It is hard to believe investors could ignore such a “Kraken monster” and leave their positions in stocks untouched, as the Federal Reserve (Fed) is set to bombard the market with 50 basis points or even 75 basis points interest rate hikes during its meeting on May 4-5.
Strong earnings reports of the “big four” from the FAANG group may slowdown stock market decline this week, but investors are likely to add short positions after Thursday. Thus, S&P 500 short positions opened at 4480-4530 could be retained despite a first target being reached. It would be wise to set a stop-loss order to prevent any losses and try to catch a possible huge downside wave in the stock market.
Crude prices are demonstrating a moderate upside as Brent crude reached a support zone at $97-105 per barrel. If the prices survive in this zone over the next 14 days, the scenario of Brent crude at $160-180 per barrel would become likely. However, the resistance level at $112-115 per barrel would be a key indication for this scenario. The EU nations may finally announce a partial or full Russian oil ban in May that could push the price above this resistance level.
Gold prices are declining superfast and signals pointing to a possible continuous slide are present. Thus, short positions opened at $1950-160 per troy ounce could be retained by the end of this trading week. A new possible wave of gold sell-offs could appear at the end of May.
The FX market is preparing for elevated volatility as the stock market continues to drop. EURUSD has reached a target at 1.06800-1.07000 and may go further down to the extreme level of 1.04000-1.05500. But the last drop would be risky to follow, and it is better to wait for a rebound.
GBPUSD aggressively plunged below all expected downside targets and is now oversold. This may provide a possible rebound from the 1.27200 mark to 1.27800-1.28000. However, long-term operations require clearer evidence. They may appear soon causing aggressive long positions to turn to mid-term operations.