S&P 500 (SPX) eyes another test of 3,806 resistance

• US midterm elections approach on Tuesday.
• CPI data is the next test for bond markets.
• Apple spooked markets with lower shipments.

Friday saw a massive amount of optimism before realism dawned on markets. We had enthusiasm from the bulls who jumped on talk of China reopening. The world's second-largest economy would boost global demand and avoid a global slump, they argued. Cynics pointed out that any reopening would only add to inflation on the demand side, and so we set off on a push-pull equity session for much of Friday. Eventually, it appeared optimism over China was short-lived, and reports over the weekend appear to confirm that. Zero-covid is the stated policy, and it seems China will stick to this policy in the short term at least. 

S&P 500 (SPX) news

Adding to the pressure this morning is news that Apple (AAPL) expects fewer shipments of the new iPhone 14 due to more covid restrictions in China. We spoke of this last week with reports emanating from China.

"Now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated, and customers will experience longer wait times to receive their new products,"..." COVID-19 restrictions have temporarily impacted the primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility located in Zhengzhou, China,". The company said in a statement. but they said demand was also strong  "We continue to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models"

This is not exactly reassuring, especially in light of the lack of guidance provided by Apple during its recent earnings call. It was one of the few tech companies not to guide toward next quarter earnings being strong on the top and bottom lines. Shares in Apple are down just over 1% in the premarket. Tuesday then sees another potential hurdle in the shape of US midterm elections. The Democrats are widely expected to lose the House but retain the Senate. Such an outcome will hamper any further stimulus plans from the Biden administration and leave him largely a lame duck for the next two years. 

S&P 500 (SPX) forecast

Historically, we are entering a positive setup for equity markets. Post midterms, equities have a massive skew to the upside in the following three months. That appears to be the main reason we are currently avoiding another meltdown, especially after Fed Chair Powell's hawkish message last week. Not exactly a reassuring outlook hinging on history, but there is little else positive to speak of. Earnings have been terrible for big tech, which makes up the largest weight of the main indices. We filled the gap in the daily chart on Friday but ended with a large doji indecision candle. 3,806 remains my pivot. A break of 3,700 is extremely negative in my view and will likely see a new low for the year. 

SPX daily chart