Stocks Fall Sharply As Fundamental Shifts Begin To Take Shape
Michael Kramer | Oct 05, 2021 01:08AM ET
Stocks finished the day lower, with S&P 500 down about 1.3% and the Invesco QQQ Trust (NASDAQ:QQQ) down about 2.1%. It is hard to say whether that sell-off was picking up steam yet, despite being down almost 5.5% from its highs. Given the size of the advance over the past year and a half, a 5.5% drop is not a big deal.
The S&P 500 was about 4% from its 200-day moving, a level that many people will watch but offers little if any support on a historical basis. The S&P 500 has generally cut right through the 200-day moving average during actual periods of market worry such as 2015/16, 2018, and 2020.
Now the 200-week moving average is a different story, with it only failing meaningful during the 2008 meltdown and the 2020 COVID meltdown. But if we are heading to the 200-week moving average, we have merely brushed the decline’s surface because that average is somewhere around 3,200.
There are fundamental reasons for the recent decline in the market; this isn’t a technical adjustment being made. There are multiple issues with this market, such as high valuation, a Fed that is due to become less friendly, slowing GDP growth, slowing earnings growth, and the potential for a disappointing earnings season. Not to mention the index isn’t even oversold yet, so there is a good chance we see 4,240 in the coming days. Once we fell below 4,306 Monday, the index was unable to rise back above it. I go through all of the fundamental shifts in the YouTube video below .
From a technical standpoint, it almost appeared there was a head and shoulder pattern formed in the index, with a neckline that had already broken.
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The VIX index hardly moved Monday, rising to 22.95. For now, the VIX appeared to be settling into this 23 region, and it was interesting because it implied about a 1.5% daily move in the S&P 500. Given the recent volatility in the market, it would explain why you haven't seen the VIX move lower as we saw during previous sell-offs. Additionally, it seemed the VIX could be setting up for a higher spike.
Today, we saw the selling pressure on the mega-cap names pick-up, with Facebook (NASDAQ:FB) falling nearly 5%. I have never been a fan of Facebook, and the latest news isn’t going to help the stock. At time of writing, support was at $325, and you have to hope that holds; otherwise, we could be looking at $315 as the next stop or, worse, $299.
Amazon.com (NASDAQ:AMZN) fell to support yesterday at $3,200. It was an essential level for the stock, as the next level of support doesn’t come until $3,020. I know it was oversold based on the RSI, but that doesn’t always mean something because it can become more oversold. Besides, the pattern suggested the RSI will make a lower low, which means $3,020 was probably on the way.
Roku (NASDAQ:ROKU) is getting close to going over the cliff at $287. It isn’t that I don’t like the product; I think the stock is overvalued and not appropriately priced given what the product is. Anyway, after $287 comes $228, and after that, $151. That could be the most perfect double-top pattern I have ever seen.
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