09.05.2022 – Not good news for the bulls: According to Goldman Sachs, the stock market will literally bleed out in the near future. However, the stock market will repeatedly resist the decline with violent, short rallies and short squeezes. At least that’s what one expert says, who has already been right twice recently.
Tony Pasquariello, head of hedge fund sales at Goldman Sachs, commented that in the meantime the negative momentum had been curbed for the time being because of the latest, not really frightening meeting of the Federal Reserve. Nevertheless, the S&P had returned to the end of the trading range that had already defined the past three months. And we add: In the four-hour chart of the S&P 500, the downtrend of the SPX is clearly visible – in which there were countermoves to the upside again and again. Most recently, this was the case at the latest Fed meeting. Which brings us back to Pasquariello’s thesis.
Once again, the Golmann sent a warning to the bulls in the financial world. Yesterday he wrote: “the more time we spend near the lower goal post, the more I question whether the state of the market is a genuine range trade … or a steady bleed to lower lows that’s interrupted, on occasion, by vicious short squeezes.” The expert did not give a clear time frame, but in previous speaking engagements he spoke of several bearish weeks. As is often the case, it depends on the state of the economy.
Buy the dips – sell the rips
For the bulls, Pasquariello now warned that the Fed would have to tighten aggressively because of inflation, which would slow down the economy. He also told the bears that the strength of the labor market is strong enough to prevent a recession. And for now, here’s the specific recommended action for all traders: “buy dips below 4200, sell rips over 4500 (and, if I’m going to be wrong, it’s more likely to the downside than to the upside).” We translate: This mentioned lower limit is likely to be broken more easily than the upper limit. And thus there seems to be more opportunities on the short side.
He was right
Pasquariello had already been right at the end of March. Against the prevailing trend, he had predicted that the party would come to an end. And he still warned of a bear market squeeze. A few days later, he wrote of recession signals that were out in the open for all to see. And in mid-April, Pasquariello stated that the best days were behind us. Again, he was right. And this time?
Our conclusion: This assessment actually has some merit. Inflation is raging, central banks have to withdraw capital from the market. But they have to be careful not to unleash a deflationary recession all of a sudden. And even fiscal policy is powerless against price increases in the supply chain triggered by Covid or the Ukraine war. In this clash of hopes and fears, the stock market will remain volatile. Bernstein Bank wishes successful trades and investments!
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