Week in review & what to expect in the coming week - 19Mar22

The week ended with a good rally in the US after the decline since the start of 2022.  Is this the bullish reversal that the market is looking for?

S&P500 as per 19Mar2022

The technicals point to an uptrend as per the 1 Day chart above.  I remain optimistically cautious as we saw a death cross formed recently on 15 Mar 2022.  It would be good if this is the reversal of the market downtrend.  1 Day stochastic is pointing to a "pullback" soon as it approaches the overbought region.  Of course, the market can continue to move with stochastic ranging along the top "overbought region" for endured periods.  

Performance by sectors as per market close 18Mar22

As per above, almost all sectors saw recovery except for utilities as investors turned away from "defensive" stocks in lieu of the "rally".

Coming pullback and potential black swans

The coming "pullback" would be an important indicator if the recent lows would be challenged.  There are potential "black swans" lurking that include the following:

• The Ukraine conflict
• The Russian exposure (following the various economic sanctions)
• The export and production disruptions for both Ukraine and Russia 
• The global rising energy costs 
• A potential agricultural supplies crisis 
• The ongoing supply chain costs and challenges
• China's recent local outbreak
• Climate-related events - like the recent earthquake in Japan and extreme weather events in the US could add more challenges

All these events pose inflationary pressures on top of the reduced economic contributions.  The rising fuel costs will soon trickle into the market affecting supply chain costs, production costs and more.  Unfortunately, these would be passed onto the consumers.

Last week's economic calendar overview

Fed's expected 25bps increase of interest rate to 0.50% was probably the biggest "expected" surprise.  The current US inflation is largely caused by the printing of "free money" and the availability of easy money (due to low-interest rate).  This led to "appreciation" in asset valuation without "much more value created" as available funds fueled demand.  This was the case of more money chasing the limited goods available in the market.  However, the Fed deemed this the choice of "lesser" evil between a potential market collapse caused by Covid.  Inflation is the consequence that they have to "live and deal with".

Economic Calendar in the coming week starting 21 Mar 2022

Economic for coming week starting 21Mar22

Jobless claims will be part of the ongoing review by the Fed, a vital consideration for their next rate hike.  The other component of interest will be the crude oil inventories.  Last week, crude oil inventory was expected to see a -1.375M but the balance of 4.345M is a bearish indicator (where the consumption was lesser than expected).  Personally, there is a disconnect in 2 areas.  First, there was lesser crude oil consumption and yet the gasoline prices continued to surge.  Next, this also implies lesser "production" in anticipation of "lesser" consumption demands.  Let us monitor this week's crude oil inventories to better get a feel of the anticipated consumption demand.

Recent Death (and Golden Cross) for S&P500 (1 Day chart)

Death cross happens when 50 days moving average cuts the 200 days moving average from above, a typically bearish signal.  Whereas, a golden cross happens when 50 days moving average cuts the 200 days moving average from below, a typically bullish signal.

Here are some dates when death and golden crosses happened on S&P500 recently:

1. Death Cross on 6 Dec 2018
2. Golden Cross on 29 Mar 2019
3. Death Cross on 27 Mar 2020 (market started to fall from 24 Feb 2020 due to the Covid outbreak)
4. Golden Cross on 9 July 2020
5. Death Cross on 15 Mar 2022

While it is vain to time the market, the duration between recent death and golden crosses were 3 to 4 months (based on the recent occurrences).

What could we expect for the coming week?

The rally should continue with a "strong" volume of over 6.68 billion as compared to the average of 3.75 billion.  I am hopeful but remain cautious in lieu of the death cross and the "potential" black swans listed above.  Adding defensive stocks could still be a good idea.  This is a good time for us to review our portfolio.