Will equity markets bounce, or be trounced? Some facts to consider before we play any bounces in markets this week: The Bad & Ugly as well as The Good, in weekly video and commentary. More from Ziad Jasani of the Independent Investor Institute.

View this week’s video commentary here:

Video

Recorded March 26, 2018, 11:02 am
Duration: 58:04

The Bad & Ugly

• Volatility is structurally higher = Larger amplitude of moves & more frequency.
• Retail traders are less likely to take-on risk after implosion of cryptos and weakness in cannabis = institutions must also see value here.
• Trade war shots-across-the-bow continue = institutional buyers remain wary.
• Technology rout hang-over still in play = biggest space in U.S. markets could pose a drag on bounces.

chart 2

• Powell did not reduce the ~25% probability of a 4th rate hike = government bond yields remain elevated = bond markets still pose risk to destabilize equities, however, if U.S. 10-year yields remain below 2.9% we have “breathing-room.”
• The bulk of Trump’s tax reform & corporate share buy-backs priced in already = Q1 2018 earnings must over-deliver to justify current valuations.
• USD liquidity tightening with rates rising and QT (Quantitative-Tightening) = Stronger USD ahead usually equals pressure on commodities and related equities.
• Core PCE Price Index (Inflation) Data March 29 has better odds of meeting-to-beating consensus expectations = ↑USD, ↓commodities.
• Nine-year bull market showing typical signs of slowing = Inflation↑, Valuations ↑, Topline-Growth Targets↓, nine years is the average lifespan of a bull market.

The Good:
• The correction bounce broke March 22 landing the S&P 500 (SPX) at its 200-day average = natural area for traders to pounce (buy-side).

chart 3

• Fear & Greed Index at extreme fear-point = contrarian indicator.
• S&P 500 remains above its long-term up-trend formation from Feb. 11, 2016.
• “Everything” is oversold or deeply oversold.
• Front half of this week is light on economic data allowing the overnight positivity room to settle in.

chart 4

• If the S&P 500 can hold above 2,604 odds favor a move to 2,645 and then to to 2,703 (Scenario B S&P 500 chart).
• IF the S&P 500/Toronto (TSX) can hold above 15,175 odds favor a move to 15,400 (Scenario B TSX chart) The “Swing-Trading-Plan:”

Chart TSX scenario

chart 5

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