SPY had an interesting week as the sell-off continued. It faked many people out on Sept. 12 as it poked above the minor downtrend line we've had over the last few weeks.
It looked as if the trend was broken until the next day when the inflation worries were back on everyone's minds, and the market took another plunge.
Will we fill the gap that the Sep. 16 gap down created, or will we flush it down when the markets reopen in a few days? Keep your eyes on the S&P 500 Futures to determine which direction it's going. Either way, don't expect significant buying until the downtrend line is broken and backtested with good volume.
As you can see, the fakeouts can look convincing but then wipe you out the next day, depending on the news. This is one reason people have such a hard time trading bear markets -- the buying can be violent and look convincing, only to see bulls get trapped as the market makes a fresh leg down.
QQQ had much of the same. It poked its head above the downtrend line and engaged the bulls, only to flush back down and continue against them. Unlike SPY, QQQ filled the gap during Friday's intraday action. Keep your eyes on 280 as solid support below, and if it breaks through that, I'm watching 276.75 and then around 269.30.
Overall with the markets, fundamentally, the key thing to be aware of is inflation and the FED's strategy toward it. The bear market will continue as long as the FED raises interest rates and inflation is high. I've written extensively about inflation and what it will take to get inflation down. With the potential railway strike still on the table, the fundamental concerns for lower prices are valid.
Another headwind for the market is the FED's position in purchasing MBS (mortgage-backed securities). According to Wolf Richter of WolfStreet.com, the Federal Reserve has officially stopped buying MBS as of Sept. 15.
This will undoubtedly affect home prices and continue to impact interest rates. The real estate market is usually slower to react to changes in the economy. It looks like the bear market is making its way over to real estate and will be there for the foreseeable future, which will also amplify the stock and bond market.
The critical thing to remember is that the FED must increase interest rates to be above the inflation rate to begin seriously combatting inflation. Until then, we won't see any major relief there.
And all of these high-growth tech stocks that had been propping up the stock market for years will be hit even harder as their borrowing cost continues to go through the roof.
The bear market continues until the Fed gets control of the inflation problem.