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Stocks Smashed As The Recession Trade Takes Effect

By Michael KramerStock MarketsMar 08, 2022 01:21AM ET
www.investing.com/analysis/stocks-smashed-as-the-recession-trade-takes-effect-200619499
Stocks Smashed As The Recession Trade Takes Effect
By Michael Kramer   |  Mar 08, 2022 01:21AM ET
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The S&P 500 fell nearly 3% Monday to close at 4,200. Meanwhile, the Q)s fell by 3.7% to close below $325. It was an exciting test for the indexes, whether or not they will be successful in taking out the lows from Feb. 24.

The RSI on the S&P 500 was clearly moving lower and was yet to hit oversold levels; it is currently at 38. Additionally, the advance-decline line made a lower low and seemed to be leading the broader index lower; I suspect the S&P 500 will create a new Intraday low in the coming days and head to support at 4,050.

With oil at $122, the dollar index at 99.25, and wheat trading at its highest prices since 2007, at time of writing, it seemed as if the global economy was heading towards a massive slowdown or recession. Additionally, there was no relief in the overnight funding markets, which means stress continues to build.

S&P 500 Index Daily Chart
S&P 500 Index Daily Chart

Also, the NASDAQ composite looked very weak, as the cumulative number of stocks making new highs minus new lows continued to make lower lows. I still think the signal this sends was that the market’s internals continue to deteriorate, and until this at least shows a sideways movement, the NASDAQ will continue to drop.

NAHL Cumulative Chart
NAHL Cumulative Chart

Financial Conditions

Meanwhile, financial conditions continued to tighten as the IEF/LQD ratio increases. It was nearing the December 2018 levels.

IEF/LQD Daily Chart
IEF/LQD Daily Chart

Spreads

The pressures and fears this places on the market resulted in the spread between the 10 and 2-year rates to drop to 22 bps as recession fears rise.

US10Y-US02Y Daily Chart
US10Y-US02Y Daily Chart

Recession Rotation

Additionally, the full recession rotation was on full display yesterday as the discretionary, housing, materials, and financial sectors were smashed. The discretionary ETF fell nearly 4.9% on the day, and the XLY dropped below support at $166.

XLY Daily Chart
XLY Daily Chart

Amazon

Amazon.com (NASDAQ:AMZN) fell by 5.6% on the day and has given back all of those post-earnings gains, as I expected would happen. I am wondering now if it will make it all the way to $2450 or not.

Amazon Daily Chart
Amazon Daily Chart

Lam

Lam Research (NASDAQ:LRCX) fell below support at $540, which makes support at $470 critical because the drop is huge after that.

LAM Research Daily Chart
LAM Research Daily Chart

Qualcomm

Qualcomm (NASDAQ:QCOM) broke support at $152, and that gap at $140 was in the process of getting filled.

Qualcomm Daily Chart
Qualcomm Daily Chart

Original Post

Stocks Smashed As The Recession Trade Takes Effect
 

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Stocks Smashed As The Recession Trade Takes Effect

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Comments (6)
jason xx
jason xx Mar 17, 2022 5:42AM ET
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I hope we are passed the worst of it but I'm not very confident
jason xx
jason xx Mar 17, 2022 5:41AM ET
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interesting I've haven't heard anyone mentioning the overnight funding markets.
George Pichurov
George Pichurov Mar 08, 2022 11:53AM ET
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I wonder if some bull butts will still drop off here mocking your awareness of stonks downturn.
Damian Wahner
Damian Wahner Mar 08, 2022 5:57AM ET
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What is your thoughts on TSLA, & AAPL, I think it's a game changer with China supporting Russia. This is where I have some doubts, if what happened in Ukraine could happen in China/Taiwan. Also since Taiwan is a major player in Semiconductors what major companies would get hurt the worst?
jason xx
jason xx Mar 08, 2022 5:57AM ET
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I don't think China is interested in helping Russia or invading Tiawan. Puketin is a marked man.
SLM McKinney
SLM McKinney Mar 08, 2022 5:39AM ET
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Looks like it's time to put our seatbelt on.
CarlJohan Nilsson
CarlJohan Nilsson Mar 08, 2022 2:43AM ET
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How likely is it that this slow grind lower continues, or that markets is instead about to crash?
 
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