The S&P 500 dropped yesterday by 1.13% to 3,901 and at the 3,900 gamma level, where the most open puts sit. Index options will expire on the open today, so a lot of that option gamma that has helped to support the market will be gone at the opening. That means if the sellers show up in force today, there could be enough for the index to finally break that 3,900 support and begin another drop to around 3,835. That is where the next big gap to fill in the market rests.
Additionally, yesterday we did manage to close below the ascending broadening wedge, which I would consider a bearish development.
TIP/QQQ
Additionally, real yields continue to increase, sending the TIP ETF lower. The TIP closed at a new low yesterday, which is not a good signal for the QQQ. The TIP ETF continues, in my opinion, to be the best leading indicator for where this market is heading, and as long as the TIP ETF keeps making new lows, the QQQ will fall. The key here is that higher real yields mean that the present value of long-duration growth assets becomes worth less.
Dollar
The Chinese yuan continues to weaken versus the dollar; yesterday, it crossed the critical 7 level. That has been an essential level in the past. Given the Fed tightening cycle and the easing path that the Chinese are taking, it seems possible that the yuan could head towards 7.1 from a technical standpoint. The PBOC may look to defend that 7 level. However, that may be a positive development for our inflation problem. The more the yuan devalues versus the dollar, the cheap it becomes to import goods from China.
Adobe
Adobe (NASDAQ:ADBE) fell sharply by 17% to close around $309; the company announced an acquisition of Figma for $20 billion while also reporting results. The stock is down a lot, and $280 looks reasonably possible. It isn’t clear, at this point, what the results of this deal will be and how it will change the revenue and earnings forecast, which makes the shares iffy. Until there is more clarity, the stock could see further downside, with $280 being the next meaningful level of support.
Amazon
Amazon (NASDAQ:AMZN) is again testing support around $126, with a gap to fill around $123. Should it get to that price, it would have erased all of its post-earnings gains. Not only that, but if support at $123 should break, there is another lower gap to fill at $116 and $110.
FedEx
FedEx (NYSE:FDX) fell after hours; the company had soft first-quarter results and pulled full-year guidance. This stock went straight up throughout most of 2020 and 2021, and now the shares are falling, and they could fall sharply. The stock is already trading below a support level at $183, and if that price isn’t recovered over the next few days, it could result in the stock filling the gap at around $136.
Gold
Gold broke support, and with rates rising and the dollar growing stronger, the odds of gold slipping to $1565 increased.
