Mid-week market update: The S&P 500 bounce stalled at the 4380-4400 resistance zone, which is just below its 50 dma.
I continue to believe that the next major move is up. Here’s why.
Bond market tantrum
Stock prices have been affected by the tantrum in the bond market. The price of TIPS, or inflation-indexed bonds, have been closely tracking the S&P 500 and now they’ve cratered.
For what it’s worth, inflation-indexed bonds look like bargains. Real 10-year rates are now above the potential GDP growth rate.
Even as yields rose, TLT, the long Treasury bond ETF, is exhibiting a positive RSI divergence. TLT should start to turn up in the near future, which would be a boost to risk appetite.
More room to recover
I wrote on the weekend that the market became extremely oversold and past relief rallies off similar washed-out conditions have gone much further and I stand by those remarks. The Fear & Greed Index recovered off an extreme fear reading. Recent bounces haven’t ended until the index has reached at least 70.
In addition, the latest BoA Global Fund Manager Survey shows that sentiment is only beginning to recover from a bearish extreme with considerable potential for normalization.
The intermediate-term outlook is still bullish. Keep the faith.