Stocks Drop As The Bear Rises Ahead of The ECB and US GDP

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10/26/22

#STOCKS – $META

#MACRO – $SPY

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Stocks finished the day lower despite falling rates and a weaker dollar. Earnings were the primary driver. Strange to write that. Macro forces have dictated the market for so long that sometimes you can forget that the market can move on fundamentals.

Tomorrow we have the ECB, GDP, and inflation data. I tend to think that the inflation readings, like the GDP price index, will be hotter than expected, while the ECB is likely to be non-committal to future rate hikes.

Many people I read seem to think that the dollar and rates have peaked. I tend to believe that it isn’t that easy. While I acknowledge that nothing goes up in a straight line, I do not think they have peaked, based on inflation rates and the amount of monetary tightening that may be needed.

If GDP comes in as the Atlanta Fed GDPNow model predicts of 3.1%, then a lot of recession chatter will need to go away. Even the latest ISM data, while down in October, suggests healthy GDP growth rates. The economy is growing slower, but it seems far from the Fed’s target of below-trend growth.

I also think PCE data will come in hotter than expected on Friday.

Anyway, the S&P 500 gapped lower today, then rose sharply and finished lower. There is what looks to be a pretty ugly reversal candle today.

Ultimately, this entire pattern in the S&P 500 is unstable, with a massive rally. There also appears to be a diamond reversal pattern on the hourly chart. When these work correctly, in my experience, they return to the origin of the rally, and usually even undercut the low. That was what happened the last time in September.

Meta continues to drop, as it has now fallen below support at $114. I guess after $108; the stock could get to $90. In terms of the business, I haven’t liked Meta and never ever have.

Take care

-Mike

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