Stocks Drop As The Fed Indicates It Wants Tighter Financial Conditions
Michael Kramer | Apr 07, 2022 01:22AM ET
The S&P 500 fell by around 1%. The FOMC minutes came as I expected, indicating $95 billion a month in roll-off of the balance sheet, to start with. I had been looking for $100 billion, close enough in my book.
Anyway, the Minutes seemed to cause a lot of confusion in stocks. It was clear from reading the Minutes that the Fed wanted financial conditions to tighten, and wanted it to happen quickly. That was a bad sign for the stock market, because as I have been warning for months now, tighter financial conditions were bad for stocks. It’s a big part of the reason why the Invesco QQQ Trust (NASDAQ:QQQ) ETF was down 13.5% from its November Intraday highs.
The chart below shows the relationship between the QQQ and the Chicago National Financial conditions index, where 0 is considered neutral. The NFCI was at -0.38, so there was a lot of tightening left to go. The impacts on the QQQ will not be good.
The S&P 500 gapped lower Wednesday, and below a key support line. That was probably not good. It also turned back below its exponential 10-day moving average. This moving average served as a pretty good guide for the trend of the market. So if it stays below the average, it will tell us a lot about the direction of things to come.
The VIX shot up to nearly 25 yesterday, which was just too high, and so that gave stocks the tailwind to rally off the lows after the release of the Minutes.
I had mentioned Tuesday that Amazon.com (NASDAQ:AMZN) had a Head And Shoulders pattern in the hourly chart, and yesterday the stock gapped below the neckline. That neckline at $3,270 should be firm resistance now if this was a true H&S, and result in Amazon dropping back below $3,000.
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The same thing happened Wednesday in Shopify (NYSE:SHOP), with resistance now at $690, and the potential for the shares to drop back below $600.
NVIDIA (NASDAQ:NVDA) had the same pattern, and that also broke below the neckline, with resistance at $260, but the potential for the stock to fall below $230.
ACADIA Pharmaceuticals (NASDAQ:ACAD) continued to move higher, and was at a huge resistance level around $27.25, in what appeared to be an ascending triangle, a bullish pattern. Once resistance breaks, it has room to rise to $30 and then we can start to think about the giant gap to fill up at $45. Wouldn’t that be nice.
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