It’s going to be a busy week for markets, as we await reports on CPI as well as PPI reports, as well as 10 year as well as 30 year auctions.
CPI will be announced on Wednesday, and is anticipated to have increased by 0.2 percent per month as well as by 8.1 percent over the year during April. The PPI report will be released on Thursday and is anticipated to have risen by 0.5 percent per month as well as by 10.7 percent yearly.
The auction for the 10-year period will begin on Wednesday at 1PM ET. The 30 year auction will take place on Thursday at 1PM. Auctions are becoming important events to be watching, since they can move markets today.
Many believe that the market is headed back to an all-time high , based on various forms of technical analysis, or other approaches. My opinion is that I’m not convinced it’s likely in the near future considering the strategy of the Fed has set out.
1. Fed, QT, And Liquidity – Or Lack Thereof
There are just four words you must say to yourself each day that when you get up: DON’T fight the FED. The FED is currently working on two things that will make it difficult for markets to hit new heights: it is tightening financial conditions. This is now draining the balance of the balance sheet.
The Fed hasn’t begun to shrink its balance sheet and reserves are already declining. One reason why reserves are declining is the fact that QE has ended.
Another motive is the fact that overnight’s reverse REPO operation grows almost every day, which means that liquidity is drained from the system. The third explanation is The US Treasury removed a massive amount of funds from their account by the Fed.
The reverse Repo trend isn’t expected to stop; I’m convinced that it will continue to grow because the Fed has increased the interest rate of the facility up to 80bps.
Additionally from that, the Fed has declared that QT will start in June. This means that less liquid reserves is available for putting into the market, through leverage and margins.
Furthermore, financial conditions are getting tighter, and they will continue to tighten as that’s what the Fed wants to see occur. In tighter financial times, it causes fluctuations in the market, and can cause prices to fall in the course of time.
These elements have a huge influence on the liquidity of the market for stocks, leading to extremely wild movements within the day.
In the last week, we observed the volatility create a huge trading range. The bear flag trend was formed within the SPDR(r) S&P 500 (NYSE:SPY) beginning on Apr. 21. The pattern is now close to a major collapse.
I believe when support breaks above $405 and $405, the SPY will follow an upward trend and the next target coming in the $385-$387 area.
Another downside this week has been the fact that several market leaders have breached crucial support levels. If these levels are broken this would suggest it is set to test the support level that is essential to it.
The Intuit (NASDAQ:INTU) is an example , after it fell below $420. After that crucial level was broken the next support zone might not arrive until the level of $360.
Amazon.com (NASDAQ:AMZN) It is in a downward spiral in the last week, and it was below $2,450, and is currently trying to find support in the $2,260s. There is a possibility for Amazon to cross the $1910 gap in the coming weeks. Gaps love to be filled, and there’s any reason for Amazon’s stocks to go up in the current market.
Microsoft (NASDAQ:MSFT) is a stock facing a steep drop, but has held firm, with $270 the key here. If that level of support at $270 cracks, there is nothing to keep MSFT from dropping into the mid- $240s.
The NVIDIA (NASDAQ: NVDA) collapse isn’t far from being over; with support at around $180, looking weak. It’s possible that NVIDIA could be poised to fall below $140.
6. Advanced Micro Devices
There are gaps Advanced Micro Devices (NASDAQ:AMD) between $60 and $75 are screaming to be filled in case the mid-$80 range could finally be broken this is most likely the next area AMD goes directly.
7. Zoom Video
Zoom Video (NASDAQ:ZM) has been a good general indicator of the market. If it falls below $94, we will know that the next lower leg in the market has begun.
This week’s YouTube video is free: