After an upward start to the year 2023 in the markets, observing how the international indices react upwards after the previous drops, I would like to reflect on their real situation. The importance of manufacturing is such that it later affects the GDP that moves the indices. Identifying what it does gives us a visual advantage over what is to come.
And we’ll start with the ISM USA:
ISM is the Purchasing Managers’ Index (PMI) leading indicator of economic health for manufacturing and service sectors. The PMI index is based on surveys of purchasing managers who provide data on various factors such as new orders, inventory levels, production, supplier deliveries, and the employment environment. A PMI reading above 50 indicates expansion, while a reading below 50 signals contraction. The PMI is widely watched by economists, investors, and policymakers as it provides early signals of changes in the business cycle.
Once explained what it is, if we look at the graph below, we can see that we are in the third worst moment of this super important macroeconomic indicator, since 2008. Since then, it has only been worse once: Due to the COVID pandemic 19. And as we observe, it implies that it is going to fall even more. Moving away from the 50-point area will not bring anything good for the US GDP and therefore, the indices that have risen in a perhaps “dead cat bounce” should turn downward, and hopefully not, but they could , turn down very strongly.
(4136 point this moment): The S&P 500 Index is a stock market index that measures the performance of 500 large companies listed on stock exchanges in the United States. It is considered to be one of the most widely-followed equity indices in the world, and is often used as a benchmark for the overall performance of the U.S. stock market. The S&P 500 is made up of a diverse range of companies from various sectors, including technology, finance, healthcare, energy, and consumer goods.
The index is calculated based on the total market capitalization of its components, meaning that the larger and more valuable a company is, the greater its impact on the index. The S&P 500 is widely watched by investors, as it provides a snapshot of the health of the U.S. stock market and the economy as a whole.
The importance of this index is such that it is actually the most important on the entire planet at the moment. A fall in manufacturing would strongly affect the companies that comprise it and therefore, it would develop a sharp downward movement if the ISM continues to fall, moving away from 50 points.
Let us remember that after the great fall in the markets between 2008 and 2009, in March of that year it found support from where it began a large bullish 14-year structure. The notice of a big fall in 2020 was a technical wake-up call for and from there go up looking for the end of the long-term bullish supermovement, according to my perception.
That zone found at 4,834 points on the S&P500 index could well be the end of the long-term upward structure and after its arrival, it began a downward path, which I still understand has not ended.
It is important to understand that even going down, prices must develop descending maximums, a situation where they should be now, that although the ISM is going down, this index and others indixes go up but to find the next descending maximum, from where to continue downward, in the new long-term trend structure, or at least medium trend structure, which is bearish.
We can watch in the graph, a Fibonacci structure, completed and the rule (which does not always have to be met, but it usually does), is that when a price falls, after touching the roof of the structure, it should approach a zone important support, called 0.382% Fibo or if we put the entire previous bullish structure, from the beginning called 0 to its end called 1, visually we can find an area that appears as 0.618% Fibo and corresponds to this index, speaking of price, the 3241 points, approximately.
Remember that technical analysis is trying to decipher the following bullish or bearish movements, without a crystal ball, but relying on a mathematical structure, such as the Fibonacci structure, can give us a peripheral vision, very complete and with levels to take into account, such as those commented.
Will it happen exactly like this?
No one has the answer or the exact one, but… pay attention to everything explained.
Today, although I wanted to talk about the markets in general and analyze more indices, I will not do it, so that after finishing reading, dear reader, you can start again and assimilate what has been written, because I do not like anything, the current situation, and not only of this indicator and the situation of this index, but of the market in general and first of all, at least, I would like to issue a warning, for what could be coming, sooner rather than later.
Good luck with your investment decisions.