Stocks Drop On April 6 As The Fed Indicates It Wants Tighter Financial Conditions

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4/6/22

STOCKS – SHOP, AMZN, ACAD, NVDA

MACRO – SPY, QQQ, VIX

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MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN ACAD

The S&P 500 fell by around 1%. The FOMC minutes came as I expected, indicating $95 billion a month in roll-off of the balance sheet, to start with. I had been looking for $100 billion, close enough in my book. Anyway, the minutes seemed to cause a lot of confusion in stocks. It is clear from reading the minutes that the Fed wants financial conditions to tighten, and want it to happen quickly. That is a bad sign for the stock market, because as I have been warning for months now, tighter financial conditions are bad for stocks. It’s a big part of the reason why the QQQ ETF is down 13.5% from its November Intraday highs.

The chart below shows the relationship between the QQQ and the Chicago National Financial conditions index, where 0 is considered neutral. The NFCI is currently at -0.38, so there is a lot of tightening left to go. The impacts on the QQQ will not be good.

S&P 500 (SPY)

The S&P 500 gapped lower today, and below a key support line. That is probably not good. It has also turned back below its exponential 10-day moving average. This moving average has served as a pretty good guide for the trend of the market. So if it stays below the average, it will tell us a lot about the direction of things to come.

VIX

The VIX shot up to nearly 25 today, which was just too high, and so that gave stocks the tailwind to rally off the lows after the release of the minutes.

Amazon (AMZN)

I had mentioned yesterday Amazon had a Head And Shoulders pattern in the hourly chart, and today the stock gapped below the neckline. That neckline at $3,270 should be firm resistance now if this is a true H&S, and result in Amazon dropping back below $3,000.

Shopify (SHOP)

The same thing happened today in Shopify, with resistance now at $690, and the potential for the shares to drop back below $600.

Nvidia (NVDA)

Nvidia has the same pattern, and that also broke below the neckline, with resistance at $260, but the potential for the stock to fall below $230.

Acadia (ACAD)

Acadia continues to move higher, and is now at a huge resistance level around $27.25, in what appears to be an ascending triangle, a bullish pattern. Once resistance breaks, it has room to rise to $30 and then we can start to think about the giant gap to fill up at $45. Wouldn’t that be nice.

-Mike

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