Stocks Finish Flat on June 22 As Financial Conditions Tighten Further

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6/22/22

STOCKS – TSM, FCX, XOM

MACRO – SPY, IEF, LQD, COPPER

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The S&P 500 finished the day lower by 13 bps. It was a volatile day, with the market dropping sharply to open and rallying sharply, only to close flat. There was a strong sell-off at the open, with the S&P 500 falling to around 3,720 and rebounding nearly 80 points to 3,800. But in the end, it closed at approximately 3,760.

Maybe it was due to Powell’s testimony; I’m not sure. He had nothing new to say, which may have been reason enough to rally.

I don’t think anything changed today, so I will stick with my view that the S&P 500 retraces to under 3,700 in the next couple of sessions.

Financial Conditions (IEF / LQD)

As measured by the IEF/LQD ratio, financial conditions tightened again today and made a new closing high for the cycle. So typically, when this ratio rises, it tends to coincide with the S&P 500 dropping. So either the ratio is playing catch up to the S&P 500, or the S&P 500 has a new low coming very soon. Tomorrow will tell us a lot.

I inverted the IEF/LQD ratio on the chart below to make the relationship with the S&P 500 easier to see.

Exxon (XOM)

Today, I wrote up a story about Exxon and a potential move lower in the stock. A bearish megaphone has formed, which could see the stock fall first to around $83, but I think there is potential for $70.

Freeport (FCX)

Copper prices have been dropping, and today Freeport also fell by nearly 8%. It is a big spot for Freeport on the chart, with the stock hovering around technical support at $30. Where copper goes, Freeport will follow. But if Freeport drops below $30, there is a long way for this to fall, potentially to as low as $26.

Copper

Copper is now trading below $4 and appears to be heading to around $3.70, which is the next big support level.

Taiwan Semi (TSM)

As noted over the weekend, copper seems to be following Taiwan Semi lower. So it probably isn’t a good sign that Taiwan Semi is back to trading at its recent lows. This is, of course, also bad news for Freeport.

Have a good one!

-Mike

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