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Stocks finished the day lower yesterday, with the S&P 500 dropping 65 bps. It was a volatile session, with markets selling off to open, rallying mid-day, and selling off into the close. The focus will shift today to the FOMC minutes, which have been lost in the shuffle between rising rates and a significant CPI report on Thursday.
I do not think there will be any surprises in the FOMC minutes this time, as it seems pretty clear what the Fed’s intentions are here. The only thing I will be paying attention to is the mention of rates potentially heading beyond 4.6% and how many times the word recession comes up.
The market fell late yesterday after Governor Andrew Bailey of the Bank of England warned pension funds that the bond-buying program will end in three days, and they should finish rebalancing their positions by then.
Stocks didn’t like this because the news that the BOE would be buying bonds was seen initially as the first central bank caving in. That is not the case and never was the case, and once reality set in, it led to the index dropping into the close.
Nothing on the chart from yesterday makes me think that anything has changed in view, with the potential for the S&P 500 to fall to between 3500 and 3520 over the next few days. The 3,580 support region on the S&P 500 futures is essential because it marks the September 2020 high, and once that level breaks, there is a path to reach 3,220, which could be reasonably quick. When the market rallied in November 2020 after the election, it did so in a straight line, and sometimes those straight-line type rallies can be almost like gaps and fill fast once they come back into play.
What is sort of a concern is that the 2008 analog chart, which I have shared previously, also suggests we are in the middle of such a drop. Once 3,580 support breaks, things could quickly deteriorate with the CPI report coming Thursday, the FOMC minutes today, and the BOE intervention ending Friday, the ingredients for a 10% plunge in the market between now and the end of October are there.
Roku (NASDAQ:ROKU) continues to melt, and the RSI continues to melt. The RSI tells you the slide in shares isn’t over. While it might be hard to see on my chart, there is a gap to fill from January 2019 at $34, and that may be where this stock is heading.
JP Morgan (NYSE:JPM) will report results on Friday morning; the stock is acting poorly heading into that report. The shares broke down yesterday, falling below support at $102. At this point, the next significant level of support comes at $96.
Microsoft
Microsoft (NASDAQ:MSFT) also looks very weak, with support at $225 now in question. If that support level breaks, there is nothing until $211. I am a long-term believer in Microsoft. I have been for years, but things can get dicey should $200 break.
Taiwan Semiconductor Manufacturing (NYSE:TSM) fell sharply yesterday after the ordinary shares reopened in Taiwan after a holiday. The stock played catch-down to the rest of the sector’s weakness, and $58.80 appears to be a place shares may be heading. But more importantly, TSM can be a good indicator of the direction of the S&P 500 over time.
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