The S&P 500 fell 500 points in 2022 (so far) and now it's bouncing 20% of that drop, which is 100 points. According to our 5% Rule™, we look for 20% pullbacks from a rally or sell-off at each significant increment of 1.25%, 2.5%, 5%, 10%, 20% and 50%. It's not very different from a Fibonacci Retracement but we adjusted to take into account computer trading – since Fibonacci Retracements govern natural growth cycles, not coded ones…
And, as Asimov said:
“Since emotions are few and reasons many, the behavior or a crowd can be
more easily predicted than the behavior of one person can. And that, in turn, means that if laws are to be developed that enable the current of history to be predicted, then one must deal with large populations, the larger the better. "
That's why our 5% Rule™ applies so well to indexes and actively traded large caps and commodities – but not so well to individual stocks – we need a better sample size to make more accurate predicitions. That is another major flow in Technical Analysis – it does not take volume into account.
14,700 is where the Nasdaq needs to be to get out of the Bear Set on our bounce charts and it's well below that at 14,400 – despite this morning's 250-point gain. If the Nasdaq does clear 14,700, we will flip a bit more bullish but, for today, most likely we are still just watching and waiting – especially ahead of the Fed's firrst announcement of 2022 at 2pm and, of course, Powell's press conference at 2:30. We'll be doing a Live Trading Webinar at 1pm so we'll be live for those events – you can join us here.
The Fed is generally expected to announce no changes this month but signal they will be raising rates in March and perhaps 3 more times during 2022 – quarter-point hikes are expected but a 1% increase in the Fed funds rate is 4 TIMES where we are now (0.25%). This morning, we have good reports from MSFT, TXN and T but BA and KMB disappointed and mixed earnings are NOT going to keep the indexes at all-time highs.
We'll see what kind of bounce we can get from the Fed today but, until we clear 14,700 on the Nasdaq and hold it for 48 – there's nothing to get excited about.
"You try to reach a vital part of me
My interest level's dropping rapidly
It's all excuses baby all a stall
We just don't get excited" – Graham Parker