A late-day bounce saved the stock market from closing on its lows for the day yesterday. That would have been very disappointing for the bulls. During the summer, every sharp decline in the stock market was followed (pretty much immediately) by a strong rally, so if the stock market had followed Tuesday’s BIG decline with some more downside follow-through, it would not have been good at all for the market. In our opinion, it would have put the kind of dent into investor confidence that might have made the rest of this week a very ugly one. Therefore, the surprisingly sharp rally in the last half hour kept us from waking up this morning with the futures trading significantly lower once again.
HOWEVER, that late-day bounce still left the stock market with only marginal gains. It was not the kind of immediate/strong rally that we experienced many times over the summer. Therefore, the overall move in the market yesterday was still a disappointing one for the bulls. Also, the fact that the futures are trading lower this morning…despite tentative labor agreement which will avoid a national railroad strike…has got to be disappointing to the bulls as well.
Of course, another reason why the bulls have got to be worried is the fact that the bond market is not helping at all. The yield on the 10yr note is still flirting with the highs from June. As we highlighted yesterday, the highs we saw in yields in June corresponded with the low in the stock market. Therefore, if the 10-year yield remains at these elevated levels, it should mean that the stock market will likely revisit their June lows before long as well. (This will be especially true if the June high in yields is exceeded in any meaningful way.)
For us, we are going to be watching the September lows on four different charts. If these levels are broken to the downside in any significant way, it will confirm to us that the second leg of the 2022 bear market is upon us…and that a retest of the June lows will be all but a certainty…and probably broken to the downside. Those four chars are the ones on the S&P 500, the NDX Nasdaq 100, SMH semiconductor ETF, and AAPL. The September low for the S&P 500 was 3,908…for the NDX, it was 12,011…for the SMH, it was 205.50…and it was 153.50.
As always, we have to remember that a very slight break below any of these levels will not be enough to confirm that the second leg of this bear market is indeed upon us. It will take something more than just a mild move below them. However, we’re VERY close to each one of those levels right now…so it’s not out of the question that we could get the kind of confirmation we’re talking about sooner rather than later.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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