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August 18, 2021
STOCKS – ZM, AMD, XOM
MACRO – SPY, QQQ, OIL, COPPER
- RTM- Tapering Is Probably Coming Very Soon
- RTM- Next Live Q&A Session 8.20.21 – 1 PM ET
- RTM- Asian Markets Are On Watch For A Bearish Breakdown
- RTM – Will The Fed Taper At The Wrong Time?
- RTM Video – Is This The End Of The Rally?
- RTM – Leverage Financial Conditions Are Getting Tighter
- RTM Tactical Update – Tapering Is Coming, And It May Lead To Equity Market Turbulence
- RTM – 2Q’21 Investor Letter
Stocks fell sharply on August 18, with the S&P 500 dropping by nearly 1.1%, while the QQQ ETF drop by almost 1%. The declines were pretty broad-based, because the Russell 2000 was also down by almost 85 bps. The indexes all took a notable move lower following the Fed minutes, which confirmed much of what we have discussed here for some time. That the Fed is waiting for the labor market to start its tapering process, and that inflation has met its target.
The Fed’s minutes were from July, and therefore did not include the July employment report, which came during the first week of August. So one could argue that since that meeting, the job market has continued to improve, and is likely just one more strong report away from pushing the Fed to taper its asset purchases. These minutes imply that tapering will happen, and it is just a matter of how soon. It doesn’t mean QE ends right away, just that the amount of accommodation will lessen over time.
This will begin the process of tighter financial conditions and as I noted in this weeks long-term outlook, historically tightening financial conditions has lead to a lot of stock market volatility, and in turn, steep declines.
Overall, the breadth of the market has really deteriorated in recent days with the advance/decline now down 5 days in a row, with what appears to be the formation of a head and shoulders pattern in that indicator. Now it isn’t a confirmed pattern, but a pattern worth watching, because if continues to head lower, it would suggest the troubles in the market have just barely begun.
Additionally, our topping pattern in the S&P 500 ETF (SPY) continues to stay powerful and suggests that the recent highs remain a very strong candidate for a market peak and that a turn lower could be rather steep.
We can confirm this bearish pattern in the SPY, in the QQQ ETF, which also shows a topping pattern based on an Elliott Wave analysis. Also, notice how the RSI is trending lower, as the MACD is now firmly turning into negative territory.
There also appears to be a head-and-shoulder pattern that has some serious potential of being confirmed in the NASDAQ 100 futures. It will not take much more of a drop to confirm this bearish pattern, as it is sitting on support at that neckline at this moment.
We see further weakness in oil as it is sitting and testing support at $65. In reality, that support level has already given way, but it is best to wait for confirmation here, as the next level of support comes around $61, with a stronger level of support around $57.
Copper has now traded below its March 2020 trend line 2 days in a row and is also testing a big support level. A break of support at $4.10 sets up a drop to around $3.90.
With oil prices slipping, it seems likely that stocks in the energy sector will struggle, and Exxon is not likely immune. Exxon has a big gap that needs to be filled at $51, and if oil keeps dropping that is probably the next stop for Exxon.
The chart of AMD is looking pretty bad, with the stock taking out support at $104, probably sends it back to around $99.
Zoom is another stock that doesn’t look strong at all, with what appears to be a nearly confirmed double top pattern. All it will take here is a break of support at $340 for a decline to $280 to begin.
That will be all for today.
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