5/16/22

STOCKS – SHOP, BAC, ROKU

MACRO – SPY, VIX, IEF, LQD

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Stocks were all over the place, down sharply to open, up sharply mid-day, and down by day’s end. The S&P 500 index finished lower by 40 bps, but fell by nearly 1.1% from its afternoon highs to afternoon lows.

S&P 500 (SPY)

Whatever you want to call this period of consolidation, the pattern is growing more and more negative. Once the trend line at 4,000 breaks decisively, it should result in that gap-filling at 3,930, with the potential to go to 3,860’s.

The S&P 500 futures have formed a potential double top pattern and will need to break below the 3,980s for that pattern to start playing out, which also suggests a decline to the 3,860s.

VIX

The only reason the S&P 500 managed to hold up as well as it did was that there was a mild VIX melt all day long, which was surprising since Powell will be speaking tomorrow at 2 PM. One would think that hedging would have been focused on today, but maybe the plan is to place those hedges tomorrow morning, or perhaps everyone feels they are already perfectly hedged.

Financial Conditions (IEF/LQD)

It is clear that despite all the games being played in the equity market, financial conditions are still getting tighter, and based on the IEF/LQD ratio, conditions are now their tightest since early March. This measure works well enough to tell us that it is not good for stock prices over the long run as the ratio rises further.

Shopify (SHOP)

Shopify fell 10.5% today after a big up week last week. The rally last week looks like a retracement to the other side of the trading channel and nothing more. If so, the mid-280s should be in the stock’s not-too-distance future.

Bank of America (BAC)

The gap for Bank of America at $33.30 stands a chance of being filled. That would take the stock back to prices last seen in February 2021.

Roku (ROKU)

That may be a falling wedge in Roku and a bullish divergence formed on the RSI. It may even mean the stock can go up should it rise above the down trend line and head towards the $110s. Of course, failure could mean the mid-$70s.

That’s going to be all for today.

Mike

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