Market Insight – S&P500 – Market has reached the bottom? Or the Selloff is far from being done?

Market Insight – June 1st, 2022.

• S&P500 – Market has reached the bottom? Or the Selloff is far from being done?
• Fed Indicated further rate hikes in FOMC
• Key economic data is due this week including the NFP report.

S&P 500

S&P 500 is reaching the end of the month as it recovered from the 7-week losing streak as all major equity indices jumped up sharply. We could be looking at an exhaustion high at 4160 as the S&P chart created a three-white soldiers’ pattern in the previous 3 sessions. This could be a signal for an upcoming price reversal because of the strong buying pressure. The question we need to look at is if the worst is over for the markets or if it was just the end of the first leg of the downtrend and another bear market rally. Just a week ago the S&P 500 index was down by 19.9% and about 27% on the Nasdaq. In yesterday’s session, the S&P500 was down by 0.63% to 4132.15, Dow Jones was down by 0.67% to 32990.12 points and Nasdaq was down by 0.41% to 12081.39 points.

The minutes from the Federal Reserve May meeting showed that officials believe that they can raise rates quickly further than what the market has anticipated. As a result, the 10-year US treasury yield stalled at 2.75% but the equities markets bounced after the minutes were released last week on Wednesday. As of now, investors' fears have shifted from higher interest rates to a possibility of recession as inflation remains nearly at the 40-year high mark. And many of the recession fears might get a confirmation from this week’s economic data release.

Chart Analysis -

The above S&P 500 chart shows that the index bounced back 6.58% from the trough of 3810 to touch 4170 yesterday and now it is trading just above the Pivot level on the chart at 4115. The Index jumped out of the descending channel that we saw started taking shape about 2 months ago on the 28th of March. After dipping to the 3810 level the recovery pushed the index out of the downtrend parallel channel. The chart shows that the index is heading towards the 50 Day SMA line that is turning downwards and in the next few seasons, it would touch the candles. The three white soldiers’ pattern also indicates that the buying frenzy might continue if the data release due this week is favorable.  

The week ahead - is crucial as several Key economic data are due to release this week, including the Nonfarm Payrolls report and ISM (Manufacturing and services PMI) surveys. If the data shows a slowdown in the economy, then the selloff would continue, the key indices might resume a downtrend and recession fears will intensify amongst the investors. On the other hand, if the data shows signs of cooling down and overall economic health is stabilizing then recovery would continue.

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