Stocks Drop Then Pop As Financial Conditions Tighten
Michael Kramer | Apr 19, 2022 12:38AM ET
The S&P 500 finished Monday lower by one bps, and the NASDAQ Invesco QQQ Trust ETF (NASDAQ:QQQ) finished higher by eight bps. It could have been worse, with the index rallying sharply in the final 10 minutes of the day with the S&P 500 climbing by 50 bps.
Whatever selling that was pressuring stocks into the close decreased in those last 10-minutes. Perhaps there was one prominent seller, and we will need to see if the seller shows up again today or not.
The iShares 7-10 Year Treasury Bond (NYSE:IEF) ETF (NASDAQ:IEF)/iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) ratio was higher yesterday, suggesting that financial conditions are tightening again. This is important to watch should they continue to move higher.
The tighter the conditions get, the worse it will be for stocks, and the fact of the matter is that conditions should tighten further since that is what the Fed’s intention is.
Adobe Systems (NASDAQ:ADBE) shares have stalled out and are now still sitting at $425. This has really been the critical level of support for Adobe, and to this point it has held each time. We just need to wait and see what will happen. But this is a significant level, and should the stock break down from here it would be a terrible sign.
The ARK Innovation ETF (NYSE:ARKK) fell yesterday below support at $58.50, which probably puts the ETF on a path to drop to around $54.50.
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The Walt Disney Company (NYSE:DIS) is in a similar spot to Adobe, with the stock very close to breaking a very significant level of support at $127.75. Once that level breaks, nothing keeps the stock from going back to $117.
Home Depot (NYSE:HD) also finds itself on crucial support at $300, and like the others, there is not a lot holding the stock up from falling back to $285.
Zoom Video Communications (NASDAQ:ZM) is also sitting in the same spot, as the others, on support.
These stocks are all sitting on key support levels, and we can see how weak they look. If they break, it is not a positive for stocks overall. It implies just how fragile the market is here and how little it may take to break it to the downside.
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