“People need to temper their expectations. They're way too bullish here," said Professor Jeff Bierman, TheoTrade’s chief market technician, in this profile in Markets Insider. See Jeff Bierman’s TheoTrade Master "Class.
Excerpt from the Markets Insider story:
Since October 12, the S & P 500 is up almost 11% mostly on news of moderating inflation and Federal Reserve Chairman Jerome Powell acknowledging that the central bank will have to downsize its rate hikes.
Those things certainly sound bullish, but there are two problems as far as Bierman is concerned.
One problem is that the market already knew the Fed likely wouldn't carry on with its 75-basis-point hikes, and some investors seem to be mistaking this admission from the central bank as a pivot. Instead, the Fed is likely to cut down to 50 or 25-basis-point hikes and will probably keep rates high for an extended period.
The Fed has been tightening policy this year at the fastest pace in decades in an effort to cool the highest inflation rates since the early 1980s. Their stated long-term target for inflation is 2%, and officials have repeatedly said they're not done hiking rates yet.
Bierman points out that spending is cooling, and personal savings rates are at their lowest since 2005. At a time when interest rates are high, this will mean heightened defaults on things like credit cards, he said.
Bierman thinks it's probable that the S&P 500 will fall to around 3,200 (19% downside from here) and bottom around Q3 next year. The further the market falls, however, the more bullish he will be.
"3,000 or a tad below might be able to sort of rebuild a new bull market, but not until then," he said. "An overshoot would put the nail in the coffin."
See the full story (subscription required): ‘People need to temper their expectations’. A former top TD Ameritrade technical analyst says stocks have another 19% to fall before bottoming as recession looms and investors wrongly anticipate a Fed pivot.