Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Stocks Drop As Canaries Take Flight

Published 18/08/2022, 07:12
Updated 20/09/2023, 11:34

The market fell right out of the gate yesterday as rates surged around the globe, following hotter-than-expected CPI data in the UK. The US retail sales number added to the already surging rates because the report seemed pretty strong on the surface. As for the Fed minutes, I think the jury is still out. The headlines which immediately crossed appeared dovish and echoed what Powell said at the FOMC press conference. But reading the minutes suggests rates will get to a certain level and stay there.

Spreads shows that the June Fed Futures rate is trading higher than the February Fed Fund futures rate. Previously the market had seen the Fed starting to cut rates in February, and clearly that is no longer the case.

June Fed Futures Rate

Corp Bonds

The LQD also fell yesterday, and it is right on the border as to whether or not it has broken the neckline of a double-top pattern. If it is a double top pattern, which I think it is, it probably has more to drop, potentially to around $111.

LQD Daily Chart

Financial Conditions

The LQD dropping is essential because it will likely be a powerful sign that financial conditions are starting to tighten again. The IEF/LQD ratio is also trying to break free of that significant downtrend.

IEF/LQD Daily Chart

This is important because if financial conditions start to tighten, it will indicate that the rally in stocks is not only over, but depending on how much they tighten, the entire rally we have just witnessed could vanish rather quickly. The biotechs are another key sector to watch because they need access to capital to fund the cost of the development of drugs. The XBI dropped yesterday below the trend line and never recovered it. The RSI is on the cusp of breaking its uptrend too.

XBI Daily Chart

S&P 500

The S&P 500 futures broke several uptrends yesterday, and they never recovered. But more telling is that the market tried to take out 4,300 on Wednesday, failed, tried again briefly yesterday afternoon, and was rejected, which is very bearish.

S&P 500 Futures Daily Chart

4,300 is going to be a challenging level to close above this week, especially with options expiration on Friday morning for the index options. Additionally, that served as significant resistance going back to the end of April. Yes, I still see 3,950 coming.

S&P 500 Futures 1-Hour Chart

ARKK ETF

The ARKK ETF was slammed yesterday and is on the cusp of breaking a significant uptrend. The RSI has already broken its uptrend. Very bearish, in my opinion, once broken.

ARKK ETF Daily Chart

Zoom

Zoom Video (NASDAQ:ZM) is also breaking down and falling below its longer-term uptrend. $95 seems like a reasonable level to find support, but given the size of the uptrend, a steeper drop to $88 seems more probable.

Zoom Video Daily Chart

Netflix

Netflix (NASDAQ:NFLX) has taken longer than expected to turn down than I thought, but the RSI is now rolling over, and the stock seems to be going with it. A drop back to $190 seems like a nice place for this one to settle, in my opinion.

Netflix Inc Daily Chart

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.