Stocks jumped on Monday, rising by around 1.8% on the S&P 500. The pattern shaping up looks like the same setup that started on May 2 and 12. The significant Intraday reversal was followed by the gap higher the next day, a period of consolidation, and the blow-off rally.
Of course, the reversal on May 5 came the day after the FOMC meeting, and the drop on May 18 came following Powell’s WSJ Q&A session.
It is probably not a coincidence that the FOMC meeting minutes come out this Wednesday afternoon. Based on the near 5.75% rally from May 2 to May 4 and the almost 6% rally from May 12 until May 18. It wouldn’t surprise me if the S&P 500 rallied to around 4025 to 4050 by the end of the day Wednesday.
But based on the pattern, it would seem that the sell-off would not start until Thursday.
That would probably get the VIX low enough and to around 25, which is probably enough to drop the market like a stone following the FOMC minutes and start the next down cycle.
Yesterday's price action seemed not “real” based on what I saw in the options market, especially for the SPDR® S&P 500 (NYSE:SPY), with a lot of put buying and call selling, certainly not bullish activity.
So, if that options activity can continue Tuesday, it would lend further evidence to what I am thinking about it. It certainly would stick with the current cycle of the market rallying post FOMC and selling off post Minutes.
There is a downtrend in the S&P 500 cash market, too, suggesting there is limited upside to just a bit above the 4,000 level.
TIP
The iShares TIPS Bond ETF (NYSE:TIP) was down Monday, and it is important because it appears that it fell out of a bearish pattern, and it indicates it is probably on its way to another new low.
If the TIP ETF makes another new low, it probably means the Invesco QQQ Trust (NASDAQ:QQQ) will not be too far behind.
Zoom Video
Zoom Video Communications (NASDAQ:ZM) was trading sharply higher following its quarterly results. Earnings were undoubtedly more robust; revenue just barely beat estimates.
The company did increase its full-year earnings guidance while providing inline revenue guidance. The improved profitability outlook had the stock trading at over $90. I guess the options guys got this one right.
JPMorgan
JPMorgan Chase & Co (NYSE:JPM) had a strong day rising by 6% after giving better than expected guidance today at its investor day. It certainly looks like the stock may be trying to break out, but we need to see this one follow-through on Tuesday.
Snap
Snap (NYSE:SNAP) was plunging after hours; the company noted in a regulatory filing it has seen the economy deteriorate faster than expected and sees revenue and EBITDA coming in below the low end of its guidance. With a gap to fill around $13, that is likely where the shares can settle.
That is also pushing Meta Platforms (NASDAQ:FB) lower and potentially out of the lower end of the diamond pattern I noted previously.
