am/FX: Definitely Maybe

Subscriber-only

There are a few things coming together that are making me tactically bullish equities.

by Brent Donnelly

September 27, 2022

Shaded relief map of Ireland

Current Views

Flat

September 27, 2022

Definitely Maybe

Turnaround Tuesday is doing its thing today as we had a full-on panic with five straight down days for equities straddling the weekend. This bounce comes at an interesting time as the daily chart is attempting to make a double bottom.

SPX daily since April 2022

Zooming out to pre-COVID, the old all-time high (was resistance, now support) is at 3590 and there was a ton of action in the 3590/3640 area throughout Q3 and Q4 2020.

SPX daily back to mid-2020 with 200-day moving average

3590/3640 is key. I have been flat or bearish equities most of this year given the macro backdrop, but this is a very tricky zone to be short stocks and I would rather be neutral here with an open mind. I actually feel bullish, but I’m scared to admit it because it doesn’t make a ton of sense. Let me think it through here.

We are past the very bad fall equinox seasonal period of the year for stocks, but October 9th is the low point for the average seasonal path as you can see here:

SPX average seasonality since 1990

No call clear yet. US midterm years have even more impressive seasonality from mid-October to year end. Then again, 2018 was a midterm year, but QT was speeding up, and Powell was more hawkish, and stocks did this:

SPX in H2 2018

So overall it’s a mixed bag for stocks. Bad macro backdrop, and still-bad seasonals, but strong support nearby, market oversold, crypto rallying out of nowhere, and historical seasonals turn bullish soon.

NASDAQ is similarly close to major support:

NASDAQ daily chart holding 11000

And speaking of tech stocks, here’s bitcoin:

Bitcoin: Something’s definitely happening here (maybe)

My instincts are telling me to be long stocks, even though it makes no sense from a macro point of view. Perhaps it’s the anarchy in the UK markets, or just the charts, or the sneaky rally in crypto… But this is the first time I feel a bit bullish stocks in eons. I wish I had a better thesis; for now, there are just a bunch of tiny things coming together.

FX corr

The financial market remains a big blob driven by risk parity and global rates. Here is the latest 100-day correlation of FX to NASDAQ:

CFND Bloomberg

So, all this back and forth to say that I’m feeling cautiously bullish for a bounce in stocks. Nothing major, let’s say NASDAQ to 12200 and SPX to 3920.