Stocks fell sharply on Monday, the day before the giant CPI print and the Fed’s Brainard Q&A session. The CPI print, although important, will not influence what the Fed does unless it is materially hotter than the already 8.4% y/y estimate. What Brainard says will likely have a more significant impact, especially if she continues her hawkish tone from last week.
I wouldn’t be surprised if she is even more hawkish than last week. The Fed wants financial conditions to tighten, and they haven’t tightened anywhere close to where the Fed wants them to be. Inflation will not get anywhere close to coming under control until conditions tighten to neutral or above. So the real risk is that she is more hawkish than previously.
Just in case that wasn’t enough, at 1 PM, there will be a 10-year auction. Something worth keeping an eye on, considering the move higher in rates: the 10-year moved up to 2.78% and is very close to making that next move up to 3.25%. It may seem like the 10Y move is overdone, but we have to remember that things can get even more oversold in times like this because markets are responding to a policy shift, and to some extent, there is a clock ticking, which comes at the next Fed meeting.
US Dollar
The dollar is also surging, and it moved up to 125 versus the yen. That is a huge deal. The yen hasn’t been this weak since 2015. I’m wondering when the BOJ steps in and tries to warn the market. There is a reason the dollar hasn’t gone higher than 125 since 2002.
S&P 500 (SPY)
This sent stocks down, with the S&P 500 dropping by almost 1.7% and closing below support at 4,430. Because of the sharp rebound in March, there is very little support until 4,340.
NASDAQ (QQQ)
The Qs went up in a near-vertical channel, and now they are going down in a near-vertical channel. I’m looking for $336.
Dow Jones (DIA)
It is worth noting that the Dow Jones Industrial Average has a Head and Shoulders pattern on the hourly chart. The rally off the March lows should vanish very quickly.
Dow Transports (DJT)
The transports have been destroyed, and at least for yesterday they paused. The Dow Transports have a pennant pattern, and I expect the bottom to fall out.
Microsoft
Negative commentary out of UBS yesterday was enough to push the shares of Microsoft (NASDAQ:MSFT) significantly lower. Microsoft appears to have a Head and Shoulders pattern, but we won’t know for sure until it breaks $280.
AMD
Advanced Micro Devices (NASDAQ:AMD) is still feeling the effect of the downgrade from Truist last week. AMD gapped below support at $100 yesterday, which is very significant. That will become firm resistance now, and I think this is the start of the drop to $89.
