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February 25, 2022

Why/Why Not Indices Are A Buy Again

Frank Cabibi

US and UK indices are back on the rise again after a stark decline from the highs on inflation, interest rate and Russian-Ukraine concerns. After the news of the invasion, equities went from heavy bearish sentiment to bull mode. Is this recent move an indicator that indices are a buy again, or is this a trap for more downside?

Why Indices Are A Buy

Stocks rise on an increase in personal spending in the US, and after the news of the Russian invasion of Ukraine. It seemed that investors might have been treating this as a sell-the-rumor-buy-the-news event as if the invasion was already priced into the market.

A quick momentum shift in the market caused a crazy surge in demand for tech stocks which have been selling off heavily until recently. Big name tech stocks like Square (SQ), AMZN, GOOG, etc. are beating earnings and showing strong growth.

Why Indices Are Not A Buy

As we approach the end of this month, we have to start looking towards the Fed meeting in early March. It is very likely that we will see a 25bp hike at the least, and interest rates may continue to rise throughout the year. Inflation is also a serious concern for the stock market and USD as we hit highest CPI levels since the 1980s.

SPX500 and UK100

indices are a buy again

SPX500 found support on what seemed to be a sell-the-rumor-buy-the-news behavior by investors on the Russian invasion of Ukraine. One thing to look out for is this falling trend line where there could be potential resistance. Lower lows and highs suggests that momentum is still bearish for the time being.

UK100 looks in better shape than the SPX as the index makes higher highs and lows on the 1D. The market bounced right off the 200 DMA for the third time since September 2021 suggesting that this level is a reliable zone of support.

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