Market Forecast For the Week of May 2, 2022: Marking Time Until The Big Sale, With New Lows Just Days Away

FORECAST: The S&P 500 rises early in the week in a countertrend move back to 4050 then promptly reverses to retest the 3800 level. By week’s end the market will make new lows as fed-up investors go on strike and await a classic capitulation selloff. A high volume selloff to 3700 likely occurs with no substantive change in the geopolitical context, catalyzing a realization that there is nothing left to fear but fear itself. Follows a stampede to get back into equities and a new bull market, taking the S&P back to the January highs by winter.

The magic moment of capitulation hinges on the point where recession fears become mainstream. Key to watch will be the cross-asset action in the foreign currencies against the $US, commodities like copper, and the US yield curve. When all key financial markets head lower in single file the bears will mark their triumph and there will be no one left to sell if the geopolitical context remains the same. This seems most likely if Putin continues to lose the War in Ukraine but maintain his public support as the Russian economy perseveres through sanctions. Any deviation such as a right-wing coup against Putin, a military strike by North Korea, a breakdown in a nuclear state like Pakistan or a collapse of the Western alliance against Russia would give the markets something new to fear, and likely send the S&P 500 to 3200 in swift fashion.

Unfortunately there are other risks too. Wild commodity swings increase the potential for financial contagion, which is also a significant concern as dollar shortages may emerge due to sanctions on Russia’s Central Bank and several commercial banks. Talk of financial contagion is enough to send equities careening.

My current positions include a large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), Titan Machinery (TITN) and the levered ETF UPRO.