Market Reversal!
WaveTech Database Dumps Again!
KR Opinion
On Thursday, the financial markets experienced a significant turning point with a pronounced reversal pattern. This event followed closely on a day that witnessed over 3,700 sell signals by Wednesday morning, marking a notable decline.
The downward movement persisted, leading to a pivotal moment where the market’s sentiment, as measured by the WaveTech database, declined to 42%. This was soon followed by another intense selling session, a phenomenon I will delve deeper into within the WaveTech database discussion below.
The trends leading up to this shift have been well documented through various channels, including my recent YouTube videos and Substack newsletters, which have consistently pointed to signals suggesting that the market might be peaking at an intermediate level.
I have been exploring the possibility of a four—to six-week consolidation phase characterized by its broad range and heightened volatility. Thursday's market behavior vividly illustrated this, as an ascent to the 5,308 mark was sharply rebuffed. This is in line with my prior analysis, which posited that any breach above the 5,300 threshold would likely meet with significant resistance.
True to my projections, the market retreated aggressively, aligning with some of the most pessimistic levels I had anticipated for the immediate future.
Potential information leaks regarding key economic indicators, particularly employment statistics poised to surpass expectations, have arisen. This brings to the fore a nuanced scenario—while initial claims might have shown weakness, subsequent releases, specifically regarding continuing claims, underscore a resilient labor market.
An emerging narrative around employment growth attributes significant momentum to the influx of immigrants, contributing to job creation and potentially filling critical gaps in the labor market.
Despite this influx, the Job Openings and Labor Turnover Survey (JOLTS) numbers, which recently stabilized at around 8 million job openings, indicate a market approaching equilibrium.
In the context of equity markets, these dynamics suggest an overextension heralding the commencement of the anticipated sector rotation I have discussed. This rotation is expected to manifest significantly in the intermediate database, with a surge in sell signals potentially driving market bullishness down to between 78 and 82 percent.
The upcoming release of employment figures is set to inject further volatility into the markets, compelling investors to recalibrate their expectations regarding the Federal Reserve’s interest rate policies, potentially to the point of discarding hopes for any imminent rate cuts.
We stand on the brink of considerable market consolidation, projected to fluctuate within a 5 to 7% range. While it is hoped that the market will not retreat beyond a 7% correction, the emotional responses triggered by forthcoming economic indicators, especially starting from Friday morning’s data, could introduce additional volatility.
This period is crucial for investors and market observers, as it promises to define the trajectory of market trends and investor sentiment in the coming weeks.
Looking Back on Thursday’s Action
The stock market opened with gains but ended the day with significant losses. The Nasdaq Composite fell 1.4%, and the Dow Jones Industrial Average dropped over 500 points. The downturn in the afternoon was partly attributed to comments by Minneapolis Fed President Kashkari, who suggested that the Federal Reserve might not reduce interest rates this year if there isn't sufficient progress on controlling inflation.
Additionally, escalating geopolitical tensions in the Middle East, particularly concerns about potential actions from Iran against Israel, contributed to the market's decline.
These geopolitical worries also increased oil prices and shares of defense companies in the afternoon. West Texas Intermediate (WTI) crude oil futures rose 1.3% to $86.57 per barrel. Defense companies such as Lockheed Martin and RTX saw their stock prices increase by 1.4% and 1.8%, respectively.
Some investors felt that the stock market was overdue for a significant pullback after a strong start to the year, which also played a role in the afternoon downturn. The sell-off was broad, with the equal-weighted S&P 500 index falling by 1.0% and all 11 sectors of the S&P 500 ending the day lower. Six of these sectors dropped by more than 1.0%.
The initial positive sentiment in the morning was partly due to a strategy of buying the dip after a weak beginning to the quarter, buoyed by favorable movements in Treasury prices following the morning's economic data.
The data included a report on weekly jobless claims indicating a slight weakening in the labor market. This follows a previous report showing a weaker-than-expected performance in the services sector, according to the ISM Services PMI.
Treasury bonds became more attractive around the same time stocks began their decline, with the yield on the 10-year Treasury note decreasing by five basis points to 4.31% and the yield on the 2-year note falling by four basis points to 4.64%.
S&P 500: +7.9% YTD
Nasdaq Composite: +6.9% YTD
S&P Midcap 400: +6.6% YTD
Dow Jones Industrial Average: +2.4% YTD
Russell 2000: +1.3% YTD
Reviewing today's economic data:
- The number of initial jobless claims for the week ending March 30 rose by 9,000 to 221,000, compared to the KR Forecast consensus of 214,000. Meanwhile, continuing jobless claims fell by 19,000 to 1.791 million. The important observation from this data is a slight increase in initial claims, indicating a mild
softening in the labor market. However, the level of initial claims still suggests a robust labor market far from indicating a weak economy.
The trade deficit for February expanded to $68.9 billion, against the KR Forecast consensus of—$66.0 billion, up from a revised—$67.6 billion in January (initially reported as—$67.4 billion). This increase was due to exports rising by $5.8 billion from January and imports increasing by $7.1 billion from January. A significant insight from this report is the growth in both exports and imports, signaling a resurgence in global trade activity.
- Weekly EIA Natural Gas Inventories experienced a decrease of 37 billion cubic feet, slightly more than the previous 36 billion cubic feet decrease.
Looking ahead to Friday's economic indicators:
- At 8:30 AM ET: The March Nonfarm Payrolls are expected (KR Forecast consensus is 200,000, with the previous month at 275,000), Nonfarm Private Payrolls (KR Forecast consensus is 160,000, with the previous month at 223,000)
-Average Hourly Earnings (KR Forecast consensus is 0.3%, with the previous month at 0.1%),
-the Unemployment Rate (KR Forecast consensus is 3.8%, with the previous month at 3.9%), and the Average Workweek (KR Forecast consensus and previous month both at 34.3 hours).
- At 3:00 PM ET: The February Consumer Credit report is anticipated, with the previous month's figure being $19.5 billion.
WaveTech Database
