U.S. stocks finished higher as First Republic Bank (FRC – 34.27) rebounded from its recent sharp selloff on news the biggest U.S. banks will provide a joint rescue of $30 billion for the regional bank. News of the Swiss National Bank providing emergency funds of upward of $53 billion to Credit Suisse (CS – 2.16) to overcome liquidity concerns also helps to lift the stock market.
SPX closed at 3,960.28, gaining 1.76%. INDU closed higher at 32,246.55 or 1.17%. The technology-laden COMPQ continues with relative outperformance, rallying 283.22 or 2.48%. The 11 S&P sectors closed in positive territories, with the S&P Technology sector (XLK) gaining 2.81%. The S&P Communication Services sector (XLC) also rallied 2.25%, and the S&P Financials sector (XLF) recovered 1.91%.
The stabilization in bank stocks, continued strength in the Technology sector, a short-term oversold condition, and the ability of SPX to maintain above pivotal support near the December 2022 lows led to a stock market rebound today.
Although the above actions are near-term positives and may have alleviated short-term selling pressures, it does not necessarily negate the technical damages incurred over the past few weeks.
U.S. megabanks rescuing of First Republic Bank today may have alleviated the current banking problem but is this the same as the rescue that occurred during the 2007-2009 global financial crisis when JP Morgan brought out Bear Stearns and Washington Mutual or when Wells Fargo bought Wachovia?
Bond prices fell as the 10-year U.S. Treasury yield (TNX) rebounded to 3.585%. Commodities continue to fall, which is consistent with a weaker economy. Market volatility remains elevated as triple witching options expiration is tomorrow, and the next FOMC meeting is Wednesday, 3/22/23.
The federal fund's futures now point to an 80% chance the Fed will hike up rates by a 25-basis point next week. A week ago, before the banking turmoil, the street consensus view was for a 50-basis point raise.
As banking fears dominate headline news and investors look ahead to the next FOMC meeting, this will lead to choppy and volatile trading. Every Fed tightening cycle tends to expose inherent weakness in the economy. With liquidity withdrawn from the financial system, it will weigh on consumer confidence and challenge investors' mindsets. We would not be surprised to see U.S. stocks remain in a trading range this year.
Enclosed below is an update of key technical levels for SPY.
Support 1 = 380.5-382.5 (3/13/23 low and 50% retracement from Oct 2022-Feb 2023)
Support 2 = 372-375.5 (May, 11/9/22, and Dec 2022 lows and 61.8% retracement)
Support 3 = 367-368 (Jul and Nov 2022 lows)
Support 4 = 355.5-359 (Sept and Jun 2022 lows)
Support 5 = 346.52 (10/13/22 reaction low)
Resistance 1 = 391-393 (200-day ma, Jan 2022 downtrend, and 3/14/23 high)
Resistance 2 = 399-401.5 (50-day ma and 1/17 and 3/9/23 highs)
Resistance 3 = 407.5-409.5 (bottom of the Oct 2022 uptrend channel, Sept/Dec 2022 and Mar 2023 highs, and 50% retracement from Jan 2022-Oct 2022 decline)
Resistance 4 = 412-414 (Jan 2022 low and Jun 2022 high)
Resistance 5 = 418 (8/22/22 gap-down, Oct 2021 and Jan 2022 lows, and 2/2/23 high)
Resistance 6 = 424-428 (Jun and Aug 2022 highs and 61.8% retracement)
Resistance 7 = 440-444 (Dc 2021 low and 4/21/22 island reversal high)
Resistance 8 = 451-456 (top of the Oct 2022 uptrend channel, and Feb and Mar 2022 highs), and Resistance 9 = 464-472 (Nov 2021 and Jan 2022 all-time highs)
Bold represents strong support and resistance levels.