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Week Ahead: Stocks May Briefly Bounce; Oil Sell-Off Could Extend; Bitcoin To $10K

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewJun 19, 2022 08:10AM ET
www.investing.com/analysis/week-ahead-stocks-may-briefly-bounce-oil-selloff-could-extend-bitcoin-to-10k-200625979
Week Ahead: Stocks May Briefly Bounce; Oil Sell-Off Could Extend; Bitcoin To $10K
By Investing.com (Pinchas Cohen/Investing.com)   |  Jun 19, 2022 08:10AM ET
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  • S&P 500 has fallen for 10th out of 11 weeks
  • SPX joins NASDAQ and Russell in bear market
  • Dow within a hair of 20% decline
  • Bitcoin completes massive bearish top, aiming below $10K

After both the S&P 500 and Dow Jones completed their worst week since 2020 on Friday, markets could be primed for a corrective rally when trading reopens on Tuesday after the Juneteenth holiday. Though the narrative is filled with gloom and doom, and longer-term investor expectations seem to be extremely negative, stocks don't tumble in a straight line. Therefore, we're anticipating a short-term rebound within the longer term downtrend.

Weak Indices, Weaker SPX Sectors

Over the past 11 weeks, the SPX registered its 10th decline as it entered a bear market. The broad benchmark is down 24.5% since its Jan. 4 all-time high, sinking below the accepted -20% level considered to be an 'official' bear market indicator.

Why then are we predicting a possible bounce as early as this coming week? When broad sentiment is highly bearish, it increases the likelihood that whoever wanted to sell has already done so, leaving demand in charge. Technicals are helping confirm this:

SPX Weekly
SPX Weekly

The S&P 500 achieved the minimum implied target of its H&S top. The index dropped 5.1% and 5.75% in the previous weeks, respectively. The benchmark is also 4.7% above its 200-week MA, which means there is still room for another, similar weekly decline.

Note, too that significant support such as this often reaches beyond its strict location as traders try to beat each other to the punch. There could, therefore, be another weekly decline before a likely rebound, if we don't experience a short-term bounce this week.

Significantly, the decline of all 11 S&P 500 sectors simultaneously during the past week demonstrates the aggressive nature of the fall, which also primes the index for a rebound.

As well as on a weekly basis, all 11 sectors are lower over the previous month and the past three months. The single bright spot is the Energy sector which has been up over the previous six months. The remaining ten sectors are deeply in the red, with Utilities and Consumer Staples down the least and Consumer Discretionary, Communications Services, and Technology shares taking the brunt of the sell-off. The yearly view echoes the 6-month view.

The S&P 500's entry into a bear market means it's joined two other major US indices already in a slump—the tech-heavy NASDAQ 100 and the small-cap Russell 2000, down 34.2% and 32.25%, respectively.

NDX Weekly
NDX Weekly

Similar to the S&P 500 more recently, the NDX reached the implied target of its H&S top and is about 4% above its 200 WMA, after coming within 2% of this key weekly average during Friday's session low. The NASDAQ 100 gained on Friday, after having dropped 34.2% from its Nov. 22 all-time high on Thursday, its weakest level since Sept. 24.

Dow Jones Weekly
Dow Jones Weekly

The Dow Jones Industrial Average is the only major benchmark that has not yet shown a reversal pattern since its downtrend began. The 30-component blue-chip index may yet show more weakness, as there appears to be no demand on the technical chart to offset supply in order to create a range.

As well, the Dow weakened even further when the index fell below its Falling Channel on Friday, suggesting a steeper descent ahead.

However, the DJIA is the only major US index not yet in a bear market, though it's just a whisper away from that designation. On Friday, the index fell as much as 19.7% intraday from its Jan. 5 all-time high, dropping to its lowest point since Dec. 1, 2020. The price rose 1% from its 200 WMA and closed 2% above it.

RUT Weekly
RUT Weekly

The second worst performing major US index after the NASDAQ 100 is the Russell 2000. While technology stocks have been sold off, as more expensive money—via interest rate hikes—makes their total valuations too expensive, small cap domestic companies are at a disadvantage to multinationals which have the stronger possibility of continuing to grow profits despite rising interest rates.

As of Thursday's low, the small-cap gauge registered a 32.35% loss from its Nov. 8 all-time high, erasing all gains since Nov. 2020. The Russell 2000 is the only index that has already fallen below its 200 WMA. It's gapped down and dropped right through it.

The current Fed QT cycle pressures technology and small-cap shares equally. This positive correlation was visible Friday, when both the NASDAQ 100 and the Russell 200 gained.

Along with the fact that technically, stocks are poised to continue lower over the long term, within their downtrend, the Federal Reserve has indicated there will be continued tightening ahead. Indeed, this past Wednesday, the US central bank hiked rates by 0.75%, the most significant increase since 1994.

Bottom line: many of today's investors have never had to operate within a tightening economy and a significant number have been spoiled by QE when lower, or even steady rates ultimately turned into what seemed like an unending equity dip-buying opportunity.

Clearly, that's already changing.

Treasury yields, including for the 10-year benchmark, also pushed higher, touching their highest levels since 2010 midweek. Rates on Friday closed well off the weekly high, but at the highest levels since 2018.

UST 10Y Weekly
UST 10Y Weekly

That movement created a powerful Shooting Star, whose upper shadow is exceptionally long, showing how far back yields fell. Given that yields and their underlying bonds possess a negative correlation, it means that bulls pushed back a bearish advance.

Falling yields should ease the pressure on stocks, at least over the near term, reinforcing the case for the short-term equity bounce we discussed above. Still, in the longer term, the trend for yield is higher. Recently the 50-Week MA crossed over the 200-Week MA, triggering a weekly Golden Cross. The first time that happened was during Aug 2017, when yields surged nearly a whole percentage point in just a month.

The dollar rose for a third week to its highest weekly close since December 2002. At the same time, gold fell, ending a two-day rally.

Gold Daily
Gold Daily

The precious metal was lower for the week as well, sinking below the 200 DMA. In addition, the 50 DMA crossed below the 100 DMA.

The price is still trapped between the rising trend line since the March 2021 low and the falling trend line since the March 2022 high. We're betting on the longer trendline prevailing, which would push the yellow metal higher through its downtrend line.

Bitcoin has dropped toward $18,000 after breaking below $20K on Saturday.

BTC/USD Weekly
BTC/USD Weekly

The cryptocurrency is now at its lowest point since December 2020, after having dropped last week below its 200-week MA, after finally completing the double top we've been forecasting since the start of the year. We now expect Bitcoin to plummet below $10,000.

Oil plunged to $110, down 6% on Friday for the commodity's sharpest daily loss since March. The sell-off came after the Federal Reserve's hawkish interest rate increase which has left investors jittery about a recession that could hit energy demand. Also, the stronger dollar makes oil more expensive.

Oil Weekly
Oil Weekly

Oil gapped lower on Friday, wiping out five weeks' worth of gains and completing a powerful weekly Evening Star, which will challenge the preceding Symmetrical Triangle.

The Week Ahead

All times listed are EDT

Sunday

21:15: China – PBoC Loan Prime Rate: was previously set at 3.70%.

Monday

11:00: Eurozone – ECB President Lagarde Speaks

21:30: Australia – RBA Meeting Minutes

Tuesday

8:30: Canada – Core Retail Sales: predicted to plunge to 0.6% from 2.4%.

10:00: US – Existing Home Sales: expected to slip lower, to 5.39M from 5.61M.

Wednesday

2:00: UK – CPI: seen to edge up to 9.1% from 9.0%.

8:30: Canada – Core CPI: probably edged lower to 0.4% from 0.7% MoM.

10:00: US – Fed Chair Powell Testifies

Thursday

3:30: Germany – Manufacturing PMI: expected to slip to 54.0 from 54.8.

4:30: UK – Manufacturing PMI: seen to hold at 54.6.

4:30: UK – Services PMI: forecast to remain at 51.8.

8:30: US – Initial Jobless Claims: anticipated to dip to 225K from 229K.

11:00 - US – Crude Oil Inventories: previously printed at 1.956M bbl.

Friday

2:00: UK – Retail Sales: to fall to -0.9% from 1.4% MoM.

4:00: Germany – Ifo Business Climate Index: to edge down to 92.9 from 93.0.

10:00: US – New Home Sales: expected to come in lower, at 585K from 591K.

Week Ahead: Stocks May Briefly Bounce; Oil Sell-Off Could Extend; Bitcoin To $10K
 

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Week Ahead: Stocks May Briefly Bounce; Oil Sell-Off Could Extend; Bitcoin To $10K

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Comments (17)
jason xx
jason xx Jun 21, 2022 8:14AM ET
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We'll see if you get one of the 3 headlines right.
Rise Unlimited
Rise Unlimited Jun 20, 2022 1:36PM ET
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Bought BT. in 2016 for $300. Glad I can sell time and newbs sill wont know what happend. Just checking on my early retirement like the rest of us red bulls.
Rise Unlimited
Rise Unlimited Jun 20, 2022 1:29PM ET
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Also looking at quarter for signal support as hikes, yields data go into gdp with obvious overpirced. 200ma was suppose to be march but expired call pumps delayed - 2011 red bull
John Keighley
John Keighley Jun 20, 2022 11:52AM ET
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I bought BTC at $10K in 2019, hodled through Covid collapse but sold for +290% on the steep retreat from ATH. At 10K will be backing up the truck.
Rise Unlimited
Rise Unlimited Jun 20, 2022 11:52AM ET
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What changed is its now banned to half the world and kitty flix on dark web coin sentiment exposed. Also the energy cost. 2019 is still newb.
jason xx
jason xx Jun 20, 2022 11:52AM ET
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One of the few panic selling moves that may have been wise unless it doesn't drop to 10K and you don't buy back in. Could be the biggest mistake you ever made
jason xx
jason xx Jun 20, 2022 5:25AM ET
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10K BTC would mean pretty much all of the investment banks getting out.
William Smith
William Smith Jun 20, 2022 1:04AM ET
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I am far from a Bitcoin fan/bull but $10000 this week is not going to happen.
Pinchas Cohen
Pinchas Cohen Jun 20, 2022 1:04AM ET
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Read my article. I did NOT say this week.
Fan Geng
Fan Geng Jun 19, 2022 10:11PM ET
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Lmao
Michael Murfield
Michael Murfield Jun 19, 2022 8:45PM ET
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Strong dollar makes oil less expensive priced in dollars not more expensive
Pinchas Cohen
Pinchas Cohen Jun 19, 2022 8:45PM ET
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The strong dollar makes oil more expensive, as the dollar is more expensive. Therefore, the market reprices oil lower.
Choo Tiraroj
Choo Tiraroj Jun 19, 2022 7:54PM ET
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Thank you
Adi Avivi
Adi Avivi Jun 19, 2022 6:51PM ET
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thank you for this article. i am staying with my sco position a bit longer. already made 10% .. your article drives me to wait longer
Pinchas Cohen
Pinchas Cohen Jun 19, 2022 6:51PM ET
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Happy trading!
 
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