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The S&P 500 fell 67 bps on August 29, a modest decline following the sharp sell-off on Friday. The index had a very weak close, finishing below the afternoon’s lows. Additionally, it appeared to spend the day consolidating after filling the opening gap.
The S&P 500 futures may show the picture the best, as it appears to have formed a bear flag. The flag started developing very early today and continues to consolidate all day. If the flag breaks lower, which I think it will, then the S&P 500 should fall comfortably in that 3,950 range we have been talking about for some time.
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If it wasn’t clear that the Fed needs stocks to fall to tighten financial conditions to beat inflation, it should be very clear now. The Fed’s Neel Kashkari noted today: “I WAS NOT THRILLED TO SEE THE STOCK MARKET RALLY FOLLOWING OUR MOST RECENT FEDERAL OPEN MARKET COMMITTEE MEETING.” He also said: ” I AM DELIGHTED BY THE MARKET’S REACTION TO THE JACKSON HOLE.” In case those comments weren’t clear, he also said: “I KNOW HOW SERIOUS WE ARE ABOUT LOWERING INFLATION. AND I BELIEVE THE MARKETS WERE MISINTERPRETING THAT AT THE LAST FOMC MEETING.”
So as the saying goes, and as I have cautioned for the past several months, do not fight the Fed. The Fed needs asset prices to drop and credit spreads to widen to tighten financial conditions so the economy can slow and inflation can fall. Very clear and very simple to understand. So if you want to be bullish, go ahead, but if Kashkari’s comments aren’t the clearest indication that the Fed needs assets and stock prices down, then I do not know what will be.
Microsoft has a similar bear flag pattern and a huge gap that remains open from when the company reported results of around $250.
Amazon fell below support on Friday at $132, and a few significant gaps are at lower levels. The most notable gap is around $120, and another around $115. If the market heads lower, as I expect, then those gaps will likely fill at some point, I would think.
Tesla was down today, but it hasn’t broken the head and shoulder pattern’s neckline. That $280 region will be crucial; if that fails, I think we will see a significantly lower price.
See you tomorrow.
Charts used with the permission of Bloomberg Finance LP. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.