May 18, 2021

STOCKS – SQ, AMZN, HD, ZM

MACRO – SPY, IWM

Mike’s Reading The Markets (RTM) Premium Content – FREE 2-WEEK TRIAL

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Stocks finished the day lower, with the S&P 500 declining by around 80 bps and the Qs finishing down about 70 bps. It was a tranquil day until 3:40, and then the market just took a pounding, ahead of a $1.3 billion sell imbalance going into the final 10 minutes. The S&P 500 dropped almost 70 bps in that time.

The big thing today was the index falling below the March 2020 uptrend again. I think this is a big negative and likely to see more follow-through lower tomorrow. You can see in the chart that we fell below that trend line around 2:30 and then snapped higher, retesting it. Once it failed, it would be lights out for the index, which is why I think we see more selling pressure tomorrow.

Russell 2000 (IWM)

Additionally, the Russell 2000 looks fragile, with a big broadening wedge pattern that failed at the worst possible time. This does not bode well for the small-cap index.

Square (SQ)

It seems like Square is still melting, the stock was up more than 3%, yet it managed to finish flat on the day. Maybe it is just a pause in the melting, but once support at $200 breaks, it should result in a decline to $173.

Amazon (AMZN)

I’m messing around with this idea that Amazon has completed its first wave lower and that we are just about finishing up wave 2. If that is the case, the next leg lower could be a decent size drop, pushing the stock down to 2,870.

Home Depot (HD)

The chart for Home Depot doesn’t look good at all, sitting on major support at $316. Once that support level breaks, long holders better hope that $308 doesn’t crumble. If it does, there is a long-very long way down.

Lumber

Lumber reminds me a lot of when I use to trade in exotic parts of the world, like Sri Lanka or Kenya. Lumber has that feel to it, thin markets; everyone knows a big buyer or seller is in the market. Lumber is a thin market, no doubt, but if the 50-day moving average does not hold, then the decline will likely continue. Somebody wants out and is having a tough time. Reminds me of Pakistan in 2009. Every day the market would open for 15 minutes, and as soon as the main index was down 5% or something to that effect, the exchange would close for the day. Trying to sell in that type of environment isn’t easy.

Zoom (ZM)

Zoom is back over $300. The only problem is that the stock appears to be facing a strong level of resistance, around $325.

Anyway, that’s it for today.

-Mike