Market Forecast For the Week of March 13, 2023: Violence Swings Both Ways As The Bulls Try To Stay In The Ring

FORECAST: The S&P 500 corrects further to the 3800 region before violently rallying to the 4200 level in one final thrust by the bulls. Ensues another correction as interest rates ratchet back up by month-end and set the stage for a deeper move down to the October lows. The bear market could end as Summer emergers if nothing breaks on the way to lower equity and bond prices. But if Silicon Valley Bank is any indication, further breakage is likely before the bulls truly capitulate and this bear market finally ends.

Friday’s awful trading action will cause a few more bulls to capitulate early this week and send the S&P another 1-2 percent lower and the VIX surging. But I see this as temporary since falling short-term interest rates will empower the remaining bulls to try redefining this volatile financial environment as a bull market in the making. SIVB and similar concentrated commercial banks are likely isolated events that don’t bring out immediate contagion but rather lower estimates of bank earnings power, and that will leave the bears with unconvincing arguments for taking the market lower. So investors will endure another emotionally-draining trading range that leaves both sides looking to guidance from the bond and currency markets. Only when both short and long rates and the dollar break the highs set last Wednesday and reflect the true end of the Fed tightening cycle will the bulls capitulate en masse and send this market down 10% in a classic bear market rout.

Last week I had exited my position in the inverse levered ETF SPXU, while simultaneously adding to my short-term bullish position in the levered ETF UPRO (the latter of which I had noted in my previous blog posting). Consequently my current positions include a moderately large cash position, 3M (MMM), Pfizer (PFE), and the levered ETF UPRO.