As inflation slows, last week's markets executed an incredible series of completely irrational rallies and relapses ahead of the much-feared rate hike announcement the Fed is expected to make earlier this week on May 4.
Until we get past this point, the markets will forget any element of fundamental economics to focus solely on the fear of rates.
From a technical analysis perspective, the US stock market has reached the point where it will have to decide if the bear market is over or not.
We see this in the following chart...
The red circle indicates the reversal of the 50-day moving average below the 200-day moving average that occurred in early March. From there, the index seemed to have wanted to deny that bearish signal with an impressive rally that ended at the end of the month (green arrow).
The rally however did not follow. On the contrary, it was followed by a bear market that last friday broke the support at 4200 (red line), from where a real bearish channel could start with decreasing minimums and maximums.
Below you can see how the RSI, during the short uptrend of last week, has only jumped on the minimum around 36 (blue line) without reaching at least 40. Sign of an intrinsic weakness of the index.
At this point, the reaction of the U.S. market to the next Fed announcement will be a point of no return in the medium term, both to establish the bearish channel that I mentioned, which would state in no uncertain terms that we are officially in a bear market, and to deny the declines of the last two weeks, causing an upward reaction of which we will then have to understand the strength in the medium term.
Let's wait for May 4th...