Markets Test Extremes

Major top forming?

KR Opinion

The recent market activity has extended a losing streak, marking the fourth consecutive down day. Typically, market cycles like this involve five down days, three up days, and another five down days. The S&P 500 has dropped to the 5047 level, and the NASDAQ has also hit significant figures, which I'll elaborate on later. However, market sentiment remains negative due to geopolitical risks, rising interest rates, and renewed concerns about inflation reminiscent of past market cycles. The market is nearing a potential support level, but algorithmic indicators suggest there could be more days of declining prices before we find a bottom.

We expect the typical initial and continuing jobless claims data to show a stable labor market as we approach Thursday's trading session. Interestingly, yesterday's market activity included statements from several international central bank officials hinting at possible inflation increases, though they quickly reassured that yields could decrease multiple times this year. This mixed messaging is a common tactic to maintain strategic ambiguity.

In a recent YouTube video on Wednesday night, I discussed a potential major reversal pattern in the markets. While I won’t delve deeply here, I recommend watching the video for valuable insights into my current market analysis.

The market could be setting up for a significant monthly downward reversal, potentially leading to a 7 to 10% decline from the peak values observed in March. I'll continue to discuss these developments as they unfold.

Looking Back on Wednesday’s Action

Trading activity on the New York Stock Exchange mostly ended in the red, with trading volumes below average. The day began with some buying, spurred by investors looking to purchase at lower prices, but the momentum didn't last without any significant news to sustain it. Another attempt to rally in the afternoon faced resistance, yet it helped the major indices finish above their lowest points of the day.

Declines largely influenced the negative sentiment in large-cap technology stocks and semiconductors throughout the session. The Vanguard Mega Cap Growth ETF dropped by 1.0%, and the PHLX Semiconductor Index fell by 3.3%.

ASML was notably the worst performer in the semiconductor sector, dropping 7.1% after announcing weaker-than-expected first-quarter bookings. NVIDIA also fell by 3.9%, continuing to feel the effects of ongoing adjustments in high-performing stocks this year, although its year-to-date gains remain close to 70%.

The S&P 500's Information Technology sector was the hardest hit, down 1.7%, followed by the Real Estate sector, which declined by 0.8%. Conversely, the Utilities sector outperformed, gaining 2.1%, with the Consumer Staples and Materials sectors also posting modest gains.

Negative reactions to recent earnings reports also added to the downward pressure. Travelers and J.B. Hunt Transport experienced significant drops following their earnings announcements. In contrast, United Airlines saw a substantial increase of 17.5% after reporting favorable quarterly results.

The late-day rebound in stock prices was partly due to positive movements in Treasury yields, which declined following strong demand at a $13 billion bond auction. The yield on the 10-year note dropped by seven basis points to 4.59%, and the 2-year note yield decreased by three basis points to 4.93%.

Reviewing Wednesday’s economic data:

- The Weekly MBA Mortgage Applications Index increased by 3.3%, significantly from the previous 0.1%.

- Weekly crude oil inventories rose by 2.74 million barrels, following a larger increase of 5.84 million barrels the previous week.

Looking ahead to Thursday's economic calendar:

- At 8:30 AM ET: Weekly Initial Claims (KR Forecast consensus 215,000; previous 211,000), Continuing Claims (previous 1.817 million), and the April Philadelphia Fed survey (KR Forecast consensus 1.832;

- At 10:00 AM ET: March Existing Home Sales (KR Forecast consensus 4.20 million; previous 4.38 million) and March Leading Indicators (KR Forecast consensus -0.1%; previous 0.1%).

- At 10:30 AM ET: Weekly natural gas inventories (previous increase of +24 billion cubic feet)

S&P 500 Futures (June 2024)

A review of August's daily S&P 500 chart indicates that today might be a positive trading session. Currently, the market is slightly up. The expected trading range for today suggests a likely dip to a Support 1 (S1) level of around 5043,