“Is the Stock Market Correction Over?” – Macro Tides Weekly Technical Review December 2nd 2021
Macro Tides – “Is the Stock Market Correction Over?”
In the November 29 WTR the answer to this question was no. One factor supporting that view was the behavior of the VIX. “The Volatility Index (VIX) has jumped above 27.0 on 3 prior occasions in 2021 (Feb-March, May, September-October). In each case the S&P 500 rallied and then declined again with the VIX posting a lower high as noted by the second arrow in each sequence. This pattern suggests the S&P 500 is likely to experience another decline with the VIX hitting a lower high in the next two weeks.” The S&P 500 did decline to a lower low but the VIX recorded a higher high. This suggests that after an oversold bounce the S&P 500 is likely to drop below the December 2 low of 4505.
At the close of December 1 the internals of market breadth had become quite oversold as measured by the 21 day Oscillator of Advances minus Declines.
The 21 day Oscillator fell to -533 on December 2 reaching the most oversold level since March 2020. The market is rallying on December 2 as it works off this oversold condition and is likely to chop higher in coming days with a lot of volatility.
In 2021 the S&P 500 has consistently rebounded from any pullback by rallying to a new high. Although that is certainly possible, the change in monetary policy and the arrival of a new COVID variant interjects two issues that didn’t exist a week ago. The severity of Omicron won’t be known for at least two weeks but the number of cases in the US will climb as reports of infections increase. People will respond by changing their behavior which will show up in economic data and the level of activity i.e. going out to restaurants, movies, traveling, hotel occupancy rates, etc. The November CPI report comes out on December 10 and will show that inflation is moving higher, which will increase speculation on how much the FOMC will increase the taper. The FOMC will increase the size of the taper from $15 billion to either $20 billion or more likely $30 billion at the December 15 meeting.
The market will be facing more headwinds than it has in months, which is why a short term rally is expected before another decline below 4505 develops. The S&P 500 fell 239 points from its high (4744 – 4505) for Wave A, so a retracement rally has probably begun today. A 50% retracement would target 4625 for Wave B, but a 61.8% retracement is more likely and would allow a rally to 4652. A subsequent Wave C would target 4410 on the next decline. At a minimum the S&P 500 is expected to fall below 4505 before a stronger rally begins.
A SPX 4744 – 4505= 239, Wave B 50%= 4625, 61.8% = 4652, 38.2% 4596, then Wave C 4400?
Macrotides.com
jimwelshmacro@gmail.com
20211203
