Why Is The Market Selling Off?
The market has been on a downward trajectory for the past two weeks, with value and defensive stocks performing relatively better than their peers. This is following a massive rally that has produced very nice gains for investors. Are investors taking a little profit after the rally? Or is this selloff just the beginning of more to come?
Feel free to leave a comment about why you think the market has been selling off for the past two weeks.
Earnings Were a Beat
Most companies in the S&P beat earnings estimates this season. The start of earnings season saw investors bullish sentiment as stocks climbed after releasing good earnings.
The past couple of weeks, the market's reaction to earnings has been ultimately bearish. Even after an initial spike in price from good earnings reports, a selloff would follow. Earnings reactions are a good indicator of market sentiment, and typically, the market reactions follow the current market trend or narrative.
Fitch Credit Downgrade
Fitch downgraded the credit rating of the U.S. economy to an AA+ rating. This downgrade came after data was released that showed, based on the current path on the U.S. economy, the United State's debt to GDP ratio would skyrocket in the next few decades. This downgrade killed equity markets the next day, and the selloff has continued every since. The last time the U.S. recieved a credit downgrade, and the stock market experienced a sharp selloff immediately following the rate decrease, which lasted several weeks.
Treasuries are Selling Off As Inflation Eases
The Fed recently increased the amount of treasuries they will be selling at each auction throughout this year. The mismatch of supply and demand in the bond market is causing some downside in the treasury ticker symbols. The selloff in bonds could possibly be exaserbating the equity selloff.
Why would the Fed increase its bond issuances? Year-over-year CPI is on a very obvious downward path. This could allow the Fed to end its rate hiking cycle. The Fed could be increasing the supply of treasuries in anticipation of higher demand. When they stop raising interest rates, then bond investors will realize that they will not get a higher yield on bonds than the current yield. This would cause a spike in demand for treasury bonds. Maybe the Fed is anticipating this extra demand.
I should mention that oil prices have been in a very strong rally with no signs of slowing down so far. If this trend continues then we might see higher inflation in the coming months.
Bearish Seasonality of the S&P
September is notoriously the worst month for the S&P. Investors could be getting out of their investment before the worst month for the index.
Will the Rally Continue?
The market experiences regular ups and downs in price action regardless if we are in a bull or a bear market. Is the current two week selloff simply the cooling off of the rally before a continuation? Or did the fitch downgrade catalyze a temporary bear market?
Personally, I believe investors are simply taking a little profit after this strong rally. The market can not go straight up all of the time. Some selling should be expected during a healthy rally. Over the very long-term timeframe, the S&P continually goes upward. So, I am assuming that there is more upside in the future. But the question is, where do I buy the dip?
Where Do I Buy the Dip?
Selling could have been expected as the price of the S&P 500 is near all-time highs. Previous highs in price can be used as resistance levels, especially when a solid negative catalyst appears around these levels.
In the chart below, I have highlighted the long-term and short-term trends for this year. Currently, the price of the S&P 500 is just above the short-term trending support level I have highlighted by the blue line. A breakdown or a bounce in price action seems likely in the very near future.
If there is a breakdown below this support level, then I have highlighted the major horizontal support levels with yellow lines. Notice how the price of the S&P is just above the nearest horizontal support level as well as the trending support level mentioned above. A big bounce or breakdown in price seems even more eminent. The horizontal support levels seen below are at the 444.00, 437.50, and 431.00 price points. I will be watching these levels for a potential bounce in price action.
If you follow the very short-term fibonacci levels, then you are probably watching the 440.00 and 428.00 price points. These are the closest Fib retracement levels for the current short-term rally following the most recent consolidation period. These are possible support levels to watch as well.
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Very soon, I will be hosting a live broadcast on Moomoo about options investing. I am still working out the details, but I will go live within a few weeks. Stay tuned for more details.
As always, this is not investment advice. Good luck trading. Be careful and be patient. Dont anticipate the market. Participate in the market. Give your investments time. Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. And just follow the trends. A trend is your friend.
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intuitive Jackal_354 : who cares
Expendabiggles Ultratechman: Last time I checked, Trump hasnt been president for almost 3 years. Find another excuse
defishu Ultratechman: You've brainwashed domestic news. Anyone who lives abroad knows that Trump actually does things
72979822 Expendabiggles: Trump lives rent free in some of these people's heads lol
SpyderCallOP Ultratechman: I was curious why they mentioned that as one of the main reasons for the downgrade. there have been several times in history when there were debt ceiling dibacles like this last one. They never received a downgrade in the past for this reason. I think there is much more to the downgrade than debt ceiling troubles. But what do I know. I'm just a retail trader.
bwjx : Whatever highs the stock market make this year will be generation highs.
SpyderCallOP bwjx: Are you saying that the potential new all-time highs possibly made this year will be the all-time highs for the next generation, and the market will not get higher than that for the next generation of investors??
Or are you just saying that these potential new all-time highs will be amazing and the market will continue to rip higher?
jimclay8 : Trump isn't the one bringing false charges against himself ...Communist Democrats are doing that .
Stevestments Ultratechman: Biden wrecked your economy and he should be in prison.
102270795 72979822: nzc.
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