Indices Speaking Factors:

• The S&P 500 set its all-time-high on January 4th of this yr after which bears went on the assault.
• The bearish theme got here in waves this yr even with a hawkish elementary backdrop. The counter-trend strikes from June-August and October-December have been highly effective, racking up 18.92% and 19.36% bullish traits inside the general 2022 pattern that’s seen the S&P lose -19.76% on internet (as of this writing).
• The massive query for subsequent yr is whether or not the worst is over and whether or not the Fed is nearing a pivot. That doesn’t look to be the case from the place we’re at, however issues can change rapidly, illustrated by the truth that Dec 2021 noticed the Fed forecast 2-3 charge hikes for this yr and by June, they have been doing three 25 bp hikes at every assembly till December when the scaled again to a 50 bp hike.
• The evaluation contained in article depends on value motion and chart formations. To be taught extra about value motion or chart patterns, take a look at our DailyFX Training part.

Whereas 2020 was stuffed with the pandemic, 2021 was very a lot a response to the pandemic as re-openings around-the-world and big stimulus outlays helped to maintain financial development working larger. However, additionally all through final yr there was the construct of inflation that, for a very long time, the Federal Reserve dismissed as transitory. The financial institution stood by and watched as CPI flared as much as 3% after which 4%, ultimately 5%. By the point we acquired to November of 2021, CPI had already scaled as much as 6.2% for the prior month of October, and eventually a shift started to point out.

At his re-nomination listening to in November of 2021, Jerome Powell made a really public proclamation to ‘retire’ the phrase ‘transitory.’ This was seen as the top of the Central Financial institution waving the white flag on inflation, admitting that it wasn’t in truth transitory and as a substitute would have to be countered with tighter financial coverage moderately than simply standing idly by and hoping that issues corrected themselves.

As much as that time, the Fed had forecast one single charge hike in 2022. A type of lift-off, if you’ll, and that was highlighted within the dot plot matrix on the September 2021 FOMC charge determination. After Powell’s remark in entrance of Congress in November, it grew to become obvious that change was afoot and on the December charge determination, the Fed bumped that expectation as much as 2-3 hikes in 2022. Markets have been nonetheless fairly unmoved, a minimum of initially, because the S&P continued to work as much as a contemporary all-time-high.

However that really feel good temper didn’t final for lengthy into the New 12 months. The S&P 500 topped on January 4th and that’s when information of Russia lining the Ukrainian border with tanks began to take a toll. Inflation was already problematic, however the specter of disruption to Europe’s breadbasket made that quandary much more troublesome.

This led to some quick re-pricing in Q1 which, mockingly, noticed the S&P set its Q1 low on the day that Russia truly invaded (Feb twenty fourth).

The S&P 500 held close to the lows going into the March charge determination, with a robust rally creating within the back-half of the month after the Fed’s first hike. Then, because the calendar become Q2 bears have been again in droves once more.

Bears managed the matter from the April open into the June FOMC charge determination, when the Fed went for his or her first 75 bp hike in 40 years. However, after that assembly is when the S&P began to rally, after which put in an 18.92% transfer over the following two months. That lasted all the way in which till August.

In August, Powell had sufficient of the bullish up-trend and made it a degree to make his level on the Jackson Gap Financial Symposium. This triggered one other bearish leg that ran all the way in which into October thirteenth. That’s when markets began to bounce in hopeful anticipation of some type of pivot. That led to a run of 19.36% from the October thirteenth lows into the December thirteenth highs.

Collectively, this has made for a banner yr for swing merchants because the S&P 500 has proven six completely different swings on the every day chart of greater than 12% with 4 working greater than 18.92%.

S&P 500 Every day Value Chart

Chart ready by James Stanley; S&P 500 on Tradingview

S&P 500 Longer-Time period

Taking a step again, we are able to see just a few ranges of significance. The low for this yr was simply a few factors above the 50% marker of the pandemic main transfer, which is across the 3500 stage. That’s the place the pivot on October thirteenth confirmed, on the again of a higher-than-expected inflation print. The truth that a counter-intuitive response confirmed there illustrates simply how vital that assist was, as an oversold market was aggressively squeezed till there was a short-term bullish pattern to work with.

That transfer ran all the way in which till check of the 50% marker of this yr’s sell-off, which plots round 4155. That is confluent with the September swing excessive, organising a doable double high formation, which is usually tracked with the intention of bearish breakdowns, trying to the ‘neckline’ because the low level between the 2 tops.

Presently, the S&P is holding assist above a confluent spot on the chart, plotted across the 3802-3810 stage, which is each the 38.2% Fibonacci retracement of the pandemic transfer and 23.6% of this yr’s sell-off.

S&P 500 Weekly Chart

Chart ready by James Stanley; S&P 500 on Tradingview

Nasdaq Leads Decrease, Lags Larger

When markets contract, danger is punished and that’s on show within the tech-heavy Nasdaq, which has led the way-lower all year long whereas lagging on these bounce strikes. Notably the Nasdaq topped in November of final yr in order that dynamic was already on show after we opened 2022.

However, even at this time, the Nasdaq is down by greater than 34% from the January highs whereas the S&P is down a extra paltry +19%.

And there’s a fairly clearly delineated spot on the chart that’s to date helped to carry the lows. This runs between 10,501 and 10,751, every of that are Fibonacci retracement ranges, the previous of which is the 61.8% retracement of the pandemic transfer. This backside of this zone caught the lows in October and the highest of the zone helped to carry the lows in November.

If sellers can power a breach in early Q1 commerce, the following spot of assist is at 10k, which is confluent as a psychological stage that’s additionally a Fibonacci stage. The pre-pandemic swing-high is a little bit decrease, round 9763, so collectively this may mark a zone of curiosity for bearish continuation situations going into subsequent yr.

Nasdaq Weekly Value Chart

Chart ready by James Stanley; Nasdaq 100 on Tradingview

Dow

For those who checked out solely the Dow on internet, you won’t suppose that it was a really pensive yr in shares. At this level the Dow is down nearly 9% on the yr which pales compared to the -34% transfer within the Nasdaq or the -19% transfer within the S&P 500.

However, make no mistake, volatility was on full show right here in 2022 and This autumn is the place issues started to shift, because the Dow is up by 17% from its October low and at one level, was greater than 23% above that mark.

At this level the Dow stays the cleanest shirt within the soiled laundry. The massive query for subsequent yr is whether or not that’s sufficient for anybody to truly need to put on it. The index has held a key stage of assist over the previous couple of weeks at 32,789, which was the September swing excessive that grew to become confluent with a trendline projection final week.

Dow Every day Chart

Chart ready by James Stanley; Dow Jones on Tradingview

Dow Longer-Time period

Taking a step again, and there might be justifiable reversal potential right here, specifically derived from the bearish engulfing sample that printed a pair weeks in the past. Bearish engulfs sign momentum adjustments and given short-term value motion because the CPI print in December, this may stay a risk going into 2023.

That resistance response occurred at a really key spot, the 35k psychological stage. And till bulls can take that out, bearish potential will stay as a risk on a long-term foundation, even when there’s a case to be made for short-term energy.

Dow Jones Weekly Value Chart

Chart ready by James Stanley; Dow Jones on Tradingview

— Written by James Stanley

Contact and observe James on Twitter: @JStanleyFX