Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

Stocks Drop as the Markets Prepare for Powell

Published 29/11/2022, 09:01
US500
-
CAT
-
IBM
-
DX
-
VVIX
-
SKEWX
-
ZM
-
IX
-

The S&P 500 declined by around 1.6% yesterday and dropped down to around 3,960. There is a gap that is there that still needs to be filled at 3,950 from Nov. 22.

S&P 500 Index Chart

With that, I think my “C” wave is complete, and we have started the next impulse leg lower.

S&P 500 Index Daily Chart

I think a reversal in the market was pretty much due. It was evident from the rise in the VVIX and CBOE SKEW index last week that something was changing in the market, and given the hawkish Fed minutes and now Jay Powell coming up on Wednesday, traders are starting to think about their tail risk again. Also, a pretty hard reversal yesterday in the dollar index.

Higher implied volatility and a stronger dollar point towards tightening financial conditions, and I hate to say, but as I have been saying, that is what the Fed wants. So it could be that the market is anticipating a hawkish Powell.

Most notably, the Markit CDX High Yield Spread Index increased yesterday, a sign of tighter financial conditions. Given the amount of easing, if this is the market’s wake-up call, then the process has only begun.

CDXHYG Chart

Part of the rally in the dollar yesterday had to do with the events in China, its zero-COVID policies, and the protest. The dollar did gain notably today against the Chinese yuan. I would think that without a reopening policy in China, the yuan continues to weaken versus the dollar and should help support the DXY to some degree.

Dow Jones

What was also notable yesterday is that Dow Jones fell sharply, and it has been a monster leading the market higher. It broke a pretty significant trend line yesterday and has a big gap to fill down to around 32,500.

DJIA Daily Chart

IBM)

The same thing happened yesterday to International Business Machines (NYSE:IBM). Again, we have been watching IBM because it has been a market leader of late. But you can see the trend line for IBM is broken, and that would suggest that there could be a short-term pullback in the stock, which has the potential for the shares to drop back $136.

IBM Daily Chart

Caterpillar

Caterpillar (NYSE:CAT) has also been a market leader of late. This one appears to be making a double top. As I have previously noted, the RSI is trending lower. However, the stock must fall below $224 to confirm the double-top pattern. Should that happen, it would suggest the shares of CAT could drop back to $208.

CaterPillar Inc Daily Chart

Zoom

Zoom Video (NASDAQ:ZM) made a new closing low yesterday, which is very important. As I have observed, when Zoom makes a new low, the broader Nasdaq 100 is not far behind. So we will need to watch this one closely. If it starts to break down materially and drops below $70, it could be a significant warning sign for what’s to come next for the entire market.

Zoom Video Daily Chart

Original Post

Latest comments

Loading next article…
Risk Disclosure: 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.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.