Stocks finished mostly lower on Friday, with the communication names hit the hardest following Snap (SNAP)’s disastrous quarter and guidance. The Nasdaq 100 fell the most, finishing down 82 bps, while the S&P 500 dropped 11 bps.

There are many undercurrents in this market, and looking at equities solely doesn’t explain what is happening. Volatility in the currency and bond markets is rising dramatically due to expectations of shifting monetary policy. To some degree, the market is trying to figure out when the Fed will have to move from tapering to raising rates.

Fed Funds - Rates

The landscape in the Fed Funds futures has shifted dramatically, with the market now pricing in two rate hikes by the end of 2022 and potentially as many as three more by the end of 2023.

The time frame around future rate hikes appears to be getting pulled forward, sending rates on the short end of the curve higher, and those rates have moved up, especially on the 2-year bill over the past several days. The 2-year closed at 45 bps and was as high as 49 bps this week.

The move higher in the two-year has helped to flatten the yield curve. The flatter curve is an indication that the Fed may be forced to raise interest rates faster due to higher inflation rates, which may cause the Fed to make a policy mistake, ultimately triggering slower economic growth.

S&P 500 (SPY)

To this point, the S&P 500 has primarily ignored these visible shifts in the bond market. The S&P 500 finished the week just below the highs of Sept. 2, which leaves the market in an interesting position when it resumes trading on Monday. The weaker close on Friday could turn out to be a rejection of the breakout attempt.

The hourly chart left us with a diamond pattern at the top of the recent rally, usually a bearish reversal pattern. That should result in a drop this week back to 4,480, with the decline continuing back to 4,450.

We see that the RSI has been trending lower for some time, and the recent high in the S&P 500 did not see the RSI confirm that high. This trend of lower highs on the RSI with higher highs on the S&P 500 is known as a bearish divergence, and this is usually a negative pattern. Additionally, the index failed to advance beyond the February trend line.

Facebook (FB)

It will also be a big week for earnings, specifically the mega-cap names, with Facebook starting the week off. Given the poor results of Snap and many Facebook complaints in recent weeks about this new iOS 15 release, I couldn’t imagine that Facebook has a lot of good things to say.

Additionally, from reviewing Snap's transcripts, there is a real demand problem for companies placing ads. Investors are not used to Facebook missing estimates or providing weak revenue guidance. However, there is a good chance the third quarter and the fourth guidance may disappoint.

The stock has already fallen around 16% from its peak, and its valuation is not that expensive. To this point, the shares have held on to support at $320 on the last few attempts it has been tested. But the more support at $320 is tested, the more likely it will support break, which will push the shares down to around $300.

Advanced Micro Devices (AMD)

After reading Intel (INTC)’s conference call, I have some serious concerns about the read-through to AMD. I don’t think all of Intel’s problems were due to losing market share to AMD.

There seems to be some real demand-softness in China. Additionally, Intel faced some margin pressures, and we will see if AMD faces the same issues. After all, we know Taiwan Semiconductors (TSM) has been increasing prices, and we will see if AMD could pass those higher costs on to their customers.

The stock has already broken out and went up in a straight line, which seems like an unsustainable move higher. A pullback to $102 seems warranted.

General Electric (GE)

I have thought that GE could rally for some time now, and at this point, it needs to gap over that trend line that has been acting as resistance since the beginning of the year. If it can clear $106, then it seems to be a good chance to rally to $115.

I noted a bullish spread trade in late September using the Oct. 15 $100 puts and calls. It seems that this spread transaction was rolled forward to the Nov. 15 expiration with the $110 puts and calls. It suggests that it is trading above $110 by the expiration date. The setup in the chart agrees with that assumption.