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Stocks Drop Then Pop As Financial Conditions Tighten

Published 04/19/2022, 12:38 AM

The S&P 500 finished Monday lower by one bps, and the NASDAQ Invesco QQQ Trust ETF (NASDAQ:QQQ) finished higher by eight bps. It could have been worse, with the index rallying sharply in the final 10 minutes of the day with the S&P 500 climbing by 50 bps.

Whatever selling that was pressuring stocks into the close decreased in those last 10-minutes. Perhaps there was one prominent seller, and we will need to see if the seller shows up again today or not.

S&P 500 Index Chart

Financial Conditions (IEF, LQD)

The iShares 7-10 Year Treasury Bond (NYSE:IEF) ETF (NASDAQ:IEF)/iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) ratio was higher yesterday, suggesting that financial conditions are tightening again. This is important to watch should they continue to move higher.

The tighter the conditions get, the worse it will be for stocks, and the fact of the matter is that conditions should tighten further since that is what the Fed’s intention is.

IEF/LQD Chart

Adobe

Adobe Systems (NASDAQ:ADBE) shares have stalled out and are now still sitting at $425. This has really been the critical level of support for Adobe, and to this point it has held each time. We just need to wait and see what will happen. But this is a significant level, and should the stock break down from here it would be a terrible sign.

Adobe Inc, Daily Chart

ARK Innovation ETF (ARKK)

The ARK Innovation ETF (NYSE:ARKK) fell yesterday below support at $58.50, which probably puts the ETF on a path to drop to around $54.50.

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ARK Daily Chart

Disney

The Walt Disney Company (NYSE:DIS) is in a similar spot to Adobe, with the stock very close to breaking a very significant level of support at $127.75. Once that level breaks, nothing keeps the stock from going back to $117.

Walt Disney Co, Daily Chart

Home Depot

Home Depot (NYSE:HD) also finds itself on crucial support at $300, and like the others, there is not a lot holding the stock up from falling back to $285.

Home Depot Inc, Daily Chart

Zoom

Zoom Video Communications (NASDAQ:ZM) is also sitting in the same spot, as the others, on support.

Zoom Inc, Daily Chart

These stocks are all sitting on key support levels, and we can see how weak they look. If they break, it is not a positive for stocks overall. It implies just how fragile the market is here and how little it may take to break it to the downside.

Original Post

Latest comments

Yesterday we saw strong inflows into MegaCaps while the average stock finished down -1,6% according to my indices. That was rather strong selling.
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