Stocks May Be Nearing A Breaking Point
Michael Kramer | Sep 28, 2022 04:06
I kept thinking yesterday that it was Wednesday, I’m not sure why. The turnaround failed miserably yesterday. I have been thinking about the rates, especially in the UK, and what is happening there. I have never seen rates in any market move like that before. I’m wondering, I guess, if there is some gamma squeeze or forced liquidations taking place. The velocity of the move is stunning and unsettling because events like these are how things can break.
It isn’t much different for the US, as I have never seen rates move like this either. So I keep searching for signs of stress in the market, pulling out my 2008 playbook. We are seeing high yield spreads widen, and looking at the ratio of the SHY to HYG; it is clear that we surpassed the June highs.
These wider spreads drive volatility in the market, which we saw today, with the VIX now trading above 32.
At this point, I am unsure whether everything breaks, and we see spreads widen dramatically, and the VIX explodes higher, sending the S&P 500 down another 5 to 10%. Or a lid will be put back on the pot for another couple of weeks before the next downturn? That is where we are right now. Either the market will get much worse, or we are due for some hard bounce.
The S&P 500 did make a new intraday low before the end of the month. The index is oversold, but as much as it is oversold, it has been able to rally. Both Monday and Tuesday saw big rallies evaporate by afternoon. So this market appears to be consolidating right now and moving back inside its Bollinger band and removing some of that oversold condition. Another day or two of this could complete wave four.
Get The App
The QQQs are not oversold, with the ETF bouncing off its lower Bollinger band and trading with an RSI of 29.3, which just does not fit my oversold criteria. I’m not sure why the QQQ held up better than the S&P 500 in the last couple of days. It certainly does not fit with the rise in real yields.
Meta (NASDAQ:META) is now trading below its pandemic lows and appears to be heading back to its 2018 lows. It’s crazy to think this stock could be heading back to $123.
There may be something happening beneath the surface of the overall market because yesterday, Zoom Video (NASDAQ:ZM) was up, and sometimes, it seems like Zoom is a good indicator of where things are heading overall. I will need to watch this today.
The XBI also bounced yesterday after finding some support around $76. Again, this can also be a leading indicator sometimes.
Original Post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.