On Thursday, stocks fell sharply, with the S&P 500 falling by 1.4% to close at 4,650. Meanwhile, the NASDAQ 100 fell by 2.4%. The index started the day strong, but tumbled as more Fed governors seem to be joining the hawkish bandwagon for multiple rate hikes in 2022 to combat the rising inflation rates.
Despite all of this hawkish from the Fed governors bond markets are struggling to push yields higher. The big problem here is the message the bond market is sending is not easy to discern. The first reason is that rates globally are low and very much impact US rates.
The spread between the US and German 10-year right now is 1.8%, and that makes owning a US 10-year very attractive to a European investor. This was the primary reason I felt so strongly that the 10-year rate would not break above 1.77%. So far that has been the right call.
I tend to think we see will see a further curve flattening, and the 10-year head back to 1.63%.
S&P 500
Anyway, the S&P 500 continues to work within the diamond pattern and today we got the drop that was needed to maintain that pattern. Today we get retail sales and it is forecast at 0.0% month over month, which is surprising to me considering it’s December’s reading. What is more surprising to me, is that the retail sales number is not adjusted for inflation, so a 0.0% is not good at all. I still think the S&P 500 is heading to 4,570 and then lower, eventually to 4,350.
Once the bottom of the diamond breaks the selling will accelerate dramatically.
NASDAQ
The Qs actually closed below the March 2021 uptrend for the first time. Following through today is bad news, with the next support level now at $372.
Microsoft
Microsoft (NASDAQ:MSFT) fell 4% yesterday, and I will be honest, I wasn’t able to watch this one today. My 7 year old daughter has COVID, and the older daughter is remote learning. So we are all quarantined in the house, I’m getting pulled in different directions throughout the day. The drop in Microsoft was surprising. The stock closed below the uptrend and once support breaks at $305 it will be on its way to $285.
Amazon
Amazon (NASDAQ:AMZN) continues to trend lower along the downtrend. The long-term uptrend is firmly broken at this point, and the stock still has further to fall. I have a fair value of this stock around $2,800 based on a free-cash-flow multiple. That doesn’t seem out of the question.
NVIDIA
NVIDIA (NASDAQ:NVDA) is just one giant descending triangle ready to break and fall to $230. It just needs to happen already. The RSI says it will.
