Stocks Fall Sharply On October 4 As Fundamental Shifts Begin To Take Shape

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October 4, 2021

Stocks – FB, AMZN, ROKU

Macro – SPY, VIX

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S&P 500 (SPY)

Stocks finished the day lower, with S&P 500 down about 1.3% and the Qs down about 2.1%. It is hard to say that sell-off is picking up steam yet, despite being down almost 5.5% from its highs. Given the size of the advance over the past year and a half, a 5.5% drop is not a big deal. The S&P 500 is now about 4% from its 200-day moving, a level that many people will watch but offers little if any support on a historical basis. The S&P 500 has generally cut right through the 200-day moving average during actual periods of market worry such as 2015/16, 2018, and 2020.

Now the 200-week moving average is a different story, with it only failing meaningful during the 2008 meltdown and the 2020 covid meltdown. But if we are heading to the 200-week moving average, we have merely brushed the decline’s surface because that average is somewhere around 3,200.

There are fundamental reasons for the recent decline in the market; this isn’t a technical adjustment being made. There are multiple issues with this market, such as high valuation, a Fed that is due to become less friendly, slowing GDP growth, slowing earnings growth, and the potential for a disappointing earnings season. Not to mention the index isn’t even oversold yet, so there is a good chance we see 4,240 in the coming days. Once we fell below 4,306 today, the index was unable to rise back above it. I go through all of the fundamental shifts in the Free YouTube video above.

From a technical standpoint, it almost appears there is a head and shoulder pattern formed in the index, with a neckline that has already broken.

VIX (VIX)

The VIX index hardly moved today, rising to 22.95. For now, the VIX appears to be settling into this 23 region, and it is interesting because it implies about a 1.5% daily move in the S&P 500. Given the recent volatility in the market, it would explain why you do not see the VIX move lower as we have seen during previous sell-offs. Additionally, it seems the VIX could be setting you for a higher spike.

Facebook (FB)

Today, we saw the selling pressure on the mega-cap names pick-up, with Facebook falling nearly 5%. I have never been a fan of Facebook, and the latest news isn’t going to help the stock. For now, support is at $325 is holding, and you have to hope that holds; otherwise, we could be looking at $315 as the next stop or, worse, $299.

Amazon (AMZN)

Amazon fell to support today at $3,200. It is an essential level for the stock, as the next level of support doesn’t come until $3,020. I know it is oversold based on the RSI, but that doesn’t always mean something because it can become more oversold. Besides, the pattern suggests the RSI will make a lower low, which means $3,020 is probably on the way.

Roku (ROKU)

Roku is getting close to going over the cliff at $287. It isn’t that I don’t like the product; I think the stock is overvalued and not appropriately priced given what the product is. Anyway, after $287 comes $228, and after that, $151. That could be the most perfect double-top pattern I have ever seen.

Ok, that’s all

-Mike

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