DailyPlay Update – July 1, 2022

As we head into the 3-day holiday weekend, we’re continually getting the sense that this year’s prior message (i.e., sell rallies) has not really changed. The SPX has given back over half of what its gain had been from the 2022 low, and I’m still in the camp that Friday closes beneath 3617 (the more of them the worse) likely leads to another 10%+ decline in the market.

I don’t want to completely write off that the 3673/3617 zone has thus held – and that the latter was my published downside target for this move a few months ago. But barring a sudden change of events – either by the Fed (doubtful), interest rates moving substantially lower (very doubtful; or a peace agreement in the Russia/Ukraine war (very, very doubtful) – I’m just not convinced that the market has yet priced in all of the bad news that can still come.

A while ago, I wrote that downward earnings revisions were not yet priced into the market, and that we’d likely still see overall selling pressure. That selling is still evident, except, now everyone else is talking about the downward earnings revisions. That’s no longer the story I want to go with, as I like being ahead of the curve and not being with the masses.

I’ve looked back over the entire 100+ year history I have for the SPX, and it has never closed out a year on the low of the year (the way we’ve often seen the highs of the year come the last week of the year). Maybe this year is the first on record? Certainly, no one is talking about that, as most are looking for a Q3 or Q4 rally. Heck: I don’t’ know. But maybe this whole year just keeps drifting lower and never gets a lasting recovery that actually holds. I’m just saying….

With the holiday weekend upon us, I am not going to put a new position on today. I expect trading to be thin, and also with it being both the first of the month (big employment report out) plus funds rebalancing for new quarter and half, I am very content to be in “Summer Friday mode” and just let things play out.

– Rick Bensignor
Chief Market Strategist