Stock Market Volatility Picks Up On November 23 As Financial Conditions Tighten

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11/23/21

Stocks – ROKU, PYPL, BABA

Macro – SPY, HYG, LQD

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If you were only watching the stock market today, then you missed the carnage that continues in the bond market and is now spilling into the corporate and high yield markets. The HYG and LQD ETFs fell again today, and both ETFs saw considerable damage.

The LQD today fell below $131 and may now be very well heading towards $130, a sign that rates on corporate bonds are now on the rise.

All of this tells us that financial conditions are now tightening in anticipation of a Fed that will be more hawkish in 2022. Tomorrow may prove to be the nail in the coffin for the doves, with the Fed minutes coming out at 2 PM. Fed governors Clarida and Bostic may have provided a message when they recently said a faster taper may be warranted or something to that effect. Tomorrow, I expect the Fed minutes to indicate that a faster taper will be discussed at the next FOMC meeting. Given the Fed left the optionality for a faster taper in the FOMC statement from the November meeting, it seems highly likely the language in the minutes will be decisive. That will give the market until December 15 at 2 PM to break Powell into submission and not taper faster. Especially when today’s flash PMI data was weaker than expected and indicated the US economy slowed in November.

It may not seem evident when looking at the broader averages, but in the bond ETFs, the dollar index, and the Treasury market, you see massive shifts taking place. All of this is pointing to tightening financial conditions, which are not favorable for stocks.

S&P 500 (SPY)

As I noted in today’s midday write-up for readers of Reading The Markets, the S&P 500 has now seen its RSI, MACD turn lower, a sign of declining momentum. Additionally, the advance/decline line continues to plunge. Not exactly indicators that suggest the market is ready to race higher.

DJ Internet (FDN)

More importantly, look at the DJ Internet Index (FDN); today is closed on support at $233, and more importantly, right on an uptrend that dates back to September 2020.

PayPal (PYPL)

PayPal is hanging for dear life around this $190 region. It needs to hold here, or this thing is toast. Last week, I noted some bullish option buying in this stock, but I don’t know. I’m getting concerned about it. (Should be free to read- PayPal’s Oversold Stock May Be Due For A Short-Term Rebound)

Alibaba (BABA)

Today, I noted that Alibaba looks like it wanted to fill the gap back in 2017. That’s just brutal.

Roku (ROKU)

Well, Roku is now at the point where it is $228. It could be a do or die moment for the stock as it sinks into oblivion on its way to $193 and then $151. The RSI doesn’t tell me this stock is close to a bottom yet. It may get a dead cat bounce, but not the bottom.

 

See you later

Mike

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