Stocks fell again yesterday, this time by 2.2% on the S&P 500. The sell-off seems to be coming from tightening financial conditions as the systematic flows that boosted the market higher have vanished. The dollar is the driving force for a lot of this movement, and the dollar has been nothing but stronger since the FOMC minutes release on Wednesday. Yesterday the dollar closed at its highest level since 2002, at 108.95.
The move in the dollar is due to a weakening euro, which is now trading below parity at 0.994 to the dollar. Additionally, the Chinese yuan is weakening, with the exchange rate climbing to around 6.85 and on a path to where I think is about 6.96.
The dollar strength is due to a reset in Fed Fund Futures which now have rates rising to around 3.75% and are seen staying “around” that level until July, as rate cuts are being removed and replaced with rate hikes.
Of course, this led to the IEF/LQD ratio continuing to increase, a sign that financial conditions are tightening.
S&P 500
When financial conditions tighten, stocks drop, so yesterday’s decline is no surprise. As I have noted several times, I think the S&P 500 will likely fall to around 3,950. The index closed below its 10-day exponential moving average, a bearish momentum indicator.
Biotech
The XBI also fell yesteday, by 1.5%, and below its June uptrend. It looks like a strong case of a failed breakout attempt on the XBI, which is not good. There is a gap around $80 which may serve as support should the ETF get there.
Nasdaq
The QQQ also has that same failed breakout attempt on its long-term downtrend. For now, I am looking for a move down to $300 on the ETF.
Apple
Apple (NASDAQ:AAPL) fell below the rising channel yesterday and closed below its 10-Day EMA. Very bearish price action, with gaps at $164 and $156.
Zoom
Zoom Video (NASDAQ:ZM) traded sharply lower after giving weaker than expected forward guidance. I noted a couple of weeks ago that there was bearish option betting on this one; I guess those bearish bets have paid off.
