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The US stock market has been an unstoppable falling knife since the moment 2022 began as an endless torrent of inflationary headlines drive interest rate expectations to the moon.
The S&P 500 SPY broke below its -20% bear market threshold on the 3rd attempt over twice that many sessions, making a fresh 52-week low. However, the lack of panic-selling from retail investors allowed the S&P 500 to bounce cleanly off a critical 2-year fib-extension level (@ 3810) back to even once oversold RSI conditions were met in the afternoon
All the major indices touched fresh 52-week lows on Friday (5/20), but this garden variety sell-off isn’t laced with the same fear-fueled capitulation that we saw in March 2020.
The S&P 500’s 3.5% intraday range on relatively low volumes is the type of indecision that you typically see near the trough of a correction. The decisive midday springboard off this 38.2% Fibonacci extension support drawn from the S&P 500’s March 2020 low to its recent highs at the beginning of 2022, has me cautiously optimistic.
The US equity market has already essentially priced in a recession, as the market leading index's growth adjusted forward P/E multiple (PEG) trades down to an 8-year low, so what happens if we don’t’ get one?
I see US equity risk being to the upside after this overcooked correction but remember that the market can remain irrational longer than you can remain solvent.
The trend is your friend (until it’s not), so don’t fight the market by trying to call a conclusive bottom, rather scale into your favorite equities on breakdowns like we saw today.
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