Education Series: Single-Stock ETPs

The Bear Market Rally is Running out of Steam

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

In a holiday-shortened week in the U.S. with Thanksgiving on Thursday, investors would be keeping a close eye on Wednesday’s FOMC meeting minutes for signs that policymakers may start slowing the pace of its most aggressive interest rate hiking cycle since 1980. Federal Reserve Chairman Jerome Powell recently said that smaller rate increases are likely from December; however, he cautioned that ultimately rates may need to go higher than previously anticipated.

While the current front loading might be coming to an end as inflation is starting to cool down, the market is widely expecting that the Fed’s terminal rate would be in the range of 5%-5.25% in 2023, far above the current 3.75%-4.00% rate. In the economic calendar this week are the manufacturing and services PMI, the Michigan consumer sentiment, durable goods orders, and new home sales. What the flash November PMI report would indicate is important as it would impact the Fed stance in the coming weeks.

It’s been a turbulent year for Wall Street with the S&P 500 index down more than 17% from its January 2022 peak. The market rebounded strongly in October 2022, with the latest lower-than-expected CPI data boosting the index further, on hopes that the Fed may pivot from its aggressive rate hikes agenda. However, the powerful rally has stalled over the past week as investors assess the likelihood of future monetary tightening and its impact on economic growth.

It’s never a smooth ride in a rough market and the rollercoaster this year has been good for astute investors only. The right strategy was about managing and/or profiting from the new downtrend which started at the onset of the year. For the year ahead, investors will need to continue to be more tactical with their views on the economy, policy, earnings, and valuations. This is because we are getting closer to the end of the cycle, and that means the trends in these key variables can zig – zag before the final path is clear.

Source: Tradingview

During its current bear market rally triggered by hopes for softish landing, the S&P 500 has approached its 200-day moving average crossing at 4,060, which could act as a dynamic resistance for the index. The VIX index declined to a level that marked several tops for the stock market bounces in 2022. The daily chart suggests that the index might struggle to break its solid overhead resistance and could stumble much lower in the months ahead.

Broken supply chains have already caused inflation to rise substantially, and the Fed has been raising rates to tamp it back down. On top of the perfect storm of inflation triggered by prolonged supply problems, slowing growth has added to the toxic cocktail for equities. The spread between the 2- and 10-year yields reached -73.7 points, which is one of the most inverted levels in more than 40-years and cannot be recklessly ignored.

As inflation cools off, bonds could beat stocks in this final verse that has yet to fully play out. We are approaching the classic late cycle period between the Fed’s last hike and the recession. The Fed’s pause could coincide with the arrival of a recession given the extreme inflation levels.

In our view, the Fed would not pause until payrolls are substantially lower or even negative, which is the unequivocal indicator of a recession. Considering the mass layoff announcements, we have seen in recent weeks we might see massive decline in the Nonfarm Payroll readings as early as December. However, for now, the jobs market has remained stronger for longer even in the face of weakening earnings.

For the rest of November technicals are likely to take over and drive the market until the fundamentals return with next month’s Payrolls, CPI, and FOMC. The bulls and bears are battling for control and while at this point the winner is uncertain, we are inclined to believe the bear still dominates. The index is at a critical technical juncture, with price action struggling below its medium-term down trend line and its 200-day moving average, and momentum conditions still weak. Given the overall technical and fundamental backdrop and valuations not exactly a tailwind at this point, it appears there is more downside ahead before the bear market is over. While the down trend is still in progress, we are of the view that sometime in 2023 the market could turn. Once the Federal Reserve pauses its interest rate hikes, the economic growth slows and corporate profits slash, the index might then be close to an inflection point. Given we are not there yet, we see the current rebound as a bear market rally and further weakness to 3,300 points in the coming months as highly probable.

Astute investors looking to take advantage of the volatile up and down swings in the markets may consider our 3x Long US 500 and/or our -3x Short US 500 ETPs.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao


Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak


Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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