Tuesday's Market Minute: The Technicals and Fundamentals Collide This Week

This week may be the one that provides the catalyst for the much anticipated “capitulation” event traders have been waiting for to call a “bottom”. The economic reports this week are nothing short of monumental, geopolitical tensions have reached levels we haven’t seen since the Cuban Missile Crisis, and credit markets haven’t seen this much attention since 2008. 

The Technicals: From a technical standpoint, the market has breached the key level of support back in June and is now testing the recent September lows, which also coincides with the August 2020 highs. This current level also aligns with the 200-Week SMA. This indicator is critical: over the last 11 years the SPX has bounced off this moving average, except for the COVID-19 market sell-off where this trend was violated for only one month before the market began its ascent to all-time highs. From a Fibonacci Retracement standpoint, a 50% retracement from the COVID lows to the January peak would settle out at the 3,503 level – a retracement level that would be considered healthy by most chart technicians. But technical trends are not enough, let’s check out the fundamentals. 

The Fundamentals: PPI and CPI data this week will be the focus. A hot reading from either could continue this downward slide as the market will assume the Fed will have to continue its aggressive rate hiking program. Another key datapoint to keep an eye on will be the 10-year and 30-year treasury bond auction. If we see a large dealer takedown, meaning the dealers will have to purchase the remaining bonds not purchased by others in the marketplace, that could give another sign of credit market weakness – leading to rates increasing further. Lastly, banks will begin to report earnings on Friday. A key line item to keep on your radar will be the amount of Loan Loss Reserves banks set aside. As a result of the Great Financial Crisis, banks are required to set aside cash in anticipation of perceived losses they may incur due to loan defaults from their customer base. Outside of the commentary we will hear from executives in the sector, this will be the key item to gauge where banks may see cracks in the financial system.

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