Editor's note: US stocks, which are testing key positions, may usher in a good opportunity for a short-term rebound. Fundamentals, technical aspects and even this commodity trend all imply this.
Author: Simon
U.S. stocks overnight trend showed a stance of first suppression and then rising. The three major stock indexes all rebounded after bottoming out. Among them, the Nasdaq index fell by more than 2% from a sharp drop and finally closed slightly higher, which shows that the market has strong ability to take over.
Although from the overall perspective, the US stock market is facing tremendous pressure in both fundamentals and technical aspects, some of the recent signals of seem to imply that the US stock market may usher in a rebound window in the short term. However, in the context of the gradual increase in expectations of US recession, U.S. stocks may have to wait for a longer time to regain their bull market.
1. There are two major logics for trading US stocks
To put it simply, there are two main logics for trading US stocks at present.
is the anti-inflation logic .
This is also the main factor in the current bear market for US stocks. As inflation levels continue to rise, the possibility of the Federal Reserve raising interest rates by 100 basis points at the 7 meeting has increased significantly. Judging from the released data, the US CPI annual rate in June rose to 9.1%, setting a new high since November 1981 . This made Wall Street, which had previously advocated that "inflation has reached its peak", slapped in the face.
Source: tradeconomics
Feder Mester commented that there is no good news in the inflation report. is certain that the inflation report shows that there is no reason to say that the rate hike will be smaller than the last time.
In other words, raising interest rates by 75 basis points in July is almost a foregone conclusion, and raising interest rates by 100 basis points can also be said to be reasonable. If the Fed raises interest rates by 100 basis points in July, then the U.S. interest rate level will directly rise to its highest level after 2008. undoubtedly, this will further squeeze liquidity, and US stocks may tighten further.
US interest rate level Source: tradeeconomics
But if we only look at the surface CPI, we may ignore some deeper factors. Although global high inflation is coming in a raging way, the changes in food and energy prices among the components of consumer prices are much higher than those in other parts. Therefore, eliminates the core CPI of food and energy prices to measure inflation levels, which is considered to be the best indicator for measuring inflation and is also considered to be able to more truly reflect the macroeconomic operation.
High energy and food prices caused by global supply chain disorders and conflicts between Russia and Ukraine may be an important factor in the continued outbreak of the US CPI. But what about the core CPI? There seems to be obvious signs of cooling.
data shows that since the US core CPI peaked at 6.5% in March this year, has shown a downward trend for three consecutive months. The annual core CPI rate fell to 5.9% in June, and may further decline in the future.
US core CPI annual rate Source: tradingeconomics
Look at the energy price that has the greatest impact on CPI - In terms of oil prices, it has fallen by more than 20% in the past month and is still below the $100 mark. This may cause the US CPI data to decline significantly compared with June, and this expectation may be an important driving force for the short-term rebound of US stocks. plus the current expectation of a 100 basis point interest rate hike, and once you only raise 75 basis points, it may be a "good thing".
But this does not mean that the US stock market will get rid of the downturn from now on, because the second most important logic for trading US stocks next may be the main theme next.
That is the logic of the US economic recession.
Although the recession is indeed difficult to define, the US GDP growth in Q1 2022 has turned negative (-1.6%), which may indicate that one foot of the US has entered a recession. The Fed is also willing to fight inflation at the cost of suppressing the economy, which further increases the risk of the US economy falling into recession.
U.S. GDP Source: tradeeconomics
In the pre-recession and mid-recession, from the historical trend, US stocks cannot bring too many optimistic expectations to investors.Even in the 1980s and 1990s, U.S. stocks rose by more than 10% during the recession, but they both ended with a big drop in the 70s and after the millennium. Especially when the financial crisis in 2008 and the impact of the epidemic in 2020, U.S. stocks fell even harder.
Source: China Securities
Therefore, if the US stock market may continue to trade anti-inflation logic at the moment, then the expectation of inflation to "peak" may become stronger and stronger, and the US stock market may usher in a rebound trend. But after the Federal Reserve continues to raise interest rates sharply, US stocks may trade recession logic. If the US economy really "collapses" by then, the US stock market will not be able to survive.
2. From a technical perspective, there is a demand for rebound in the US stock market.
From a technical perspective, there is indeed a high possibility of rebound in the US stock market. (Take the Nasdaq index as an example)
first look at the larger cycle, and take the weekly chart as an example. The overall uptrend of the Nasdaq Index, only fell below the MA200 (blue) support after the 2008 financial crisis, then recovered and the Nasdaq re-established the moving average and has continued to this day. Among them, due to the impact of the epidemic in 2020, Nasdaq also magically stood firm in this moving average, known as the watershed between bulls and bears.
and are currently testing support at this position again, and have achieved at least a "stabilization" performance, so the market may usher in a rebound in the future.
Source: Yingwei Finance
In terms of specific structure, the Nasdaq formed the "oscillation center" (blue rectangle) in the upward trend in September-November 2020 and March-May 2021 respectively, and here has become an important support level for the current downward trend of . can be seen that there is also a volatile consolidation situation in the trends from January to April and May to July this year, which is the key support in the previous role.
Source: Yingwei Finance
That is to say, if the index does not fall below the lower edge of the key range at the current position, it is possible to test the lower edge of the previous range upward, that is, the Nasdaq may rebound to the 12800-13000 range.
Finally, we will use the Fibonacci expansion line to see if this wave of decline is in place in the short term. The expansion line can be regarded as a measure of wave target. In the current downward trend of the Nasdaq, the adjustment wave may be undergoing a C wave trend, and the general length target of C wave is equal to 1.618 times of wave A or wave A (if the trend is strong enough).
Source: Yingwei Finance
It can be seen that the current downward trend of has reached the initial target position of 1, so this wave of C wave decline may end and a wave of rebound will be started. Of course, if the recession trading starts and falls below this support, it is possible to fall to 1.618, or around 8650.
3. This commodity trend is worth paying attention to
The current global high inflation level, and the sharp rise in commodity prices has made a lot of "contributions". For example, energy sources such as crude oil, coal, and natural gas, as well as agricultural products such as wheat and corn. But copper, one of the most important industrial metals, has fallen sharply by more than 35% since its high this year.
Copper price trend Source: Yingwei Finance
Due to the importance of copper to the industry, we often regard copper price performance as a forward-looking indicator of economic development . China Securities Research shows that copper prices generally declined during recession, but in periods of high inflation, copper prices often rise before the recession.
So does it mean that the current sharp drop in copper prices is exactly the expectation of a potential economic recession, but the gap between before the current high inflation and the recession officially arrives, does it mean that there is a certain opportunity for copper prices to rebound and rise? can be said that this possibility exists.
But what does this have to do with US stocks?
In fact, the trend of copper prices shows a very high correlation with the US stock market (Nasdaq Index) (see the figure below). The resonant relationship of may mean that the rebound will also appear together. If the copper price of really rebounds and rises, it will drive the US stock market out of the rebound.
Copper price superimposed with the Nasdaq Index Source: Yingwei Finance
In general, the current US stock market is still trading and playing around two major logics, but after experiencing a sharp decline, the window for the rebound of US stocks may have been opened. But from a longer-term perspective, under the shadow of the hangover of the US recession, it is difficult for US stocks to truly bottom out.
column introduction
shengyan bull and bear: Huashengtong US and Hong Kong stock opinion column, select mainstream financial media and opinion leaders comments. Instant analysis of market hotspots, reveal investment opportunities, and discuss the macro trends.
Author Profile:
Simon, a Huasheng Information Observer, a tenacious little leek that focuses on the global trading market.
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