The week ending March 18 may turn out to be one of the most critical weeks of the year, and one of the most pivotal. The Fed is expected to raise rates on March 16 by 25 bps, marking the end of the zero interest rate policy and the start of a tightening cycle. The market is only pricing in a 33% chance of the Fed raising rates to 175 to 200 bps by the end of 2022.

We may find that by the time this meeting is over, the market’s expectations are too low and those odds should be much higher, especially if some of the commentaries from Fed governors over the past few weeks turn out to be correct. In this week’s Tactical update, I indicated that based on Jay Powell’s commentary when he testified before Congress, it sounds as though he is looking to raise rates by 25 bps at every meeting this year.

(Source: CME)

Financial Conditions

Financial conditions have already started to tighten, and what is surprising is that conditions today are as tight as they were in December 2018. The only difference was that in December 2018, the Fed was about to go from a path of tightening policy to easing policy. At this point, there is no sign of the Fed reversing course, so financial conditions may only grow tighter.

Liquidity

As liquidity becomes less readily available, we see the book’s depth on the S&P 500 futures thin out, causing the spread between the bid and ask to widen. It is causing an increasing amount of Intraday volatility in the markets.

It isn’t just in equity futures that we're seeing the effects of the Fed aiming to tighten monetary policy, but we can also the results of the Fed no longer supplying QE to the markets. The depth of the book for the 10-year Treasury futures has evaporated, too.

With the Fed no longer supporting and easing financial conditions, I suspect these liquidity issues will only grow worse and volatility will grow more intense in the weeks ahead.

S&P 500 (SPY)

On Friday, the S&P 500 ETF (SPY) appears to have confirmed another double top pattern. But, this time, the ETF is heading towards the lower end of the consolidation triangle. But once that breaks, it should lead to the indexes making a series of lower lows, perhaps beyond the Feb. 24 low around $410, by potentially moving another 7% lower.

Nasdaq (QQQ)

The Qs have already broken down and have fallen out of their consolidation triangle, projecting a decline to around $300.

Apple (AAPL)

In Friday’s update, I noted that it seemed as if the market has now shifted its attention to some of the large-cap names, one of those being Apple. The shares have now firmly broken the uptrend that started in June and they seem to be on their way below $149.

AMD (AMD)

AMD continues to exhibit signs of weakness. The stock continues to head towards support at $100, and once that level breaks, there is an excellent chance it may run back to $89.

Twilio (TWLO)

Twilio continues to drop, and it appears close to filling the gap at $120.

Adobe (ADBE)

Adobe has a big earnings announcement coming on March 22, which, given DocuSign’s result, appears to have the market feeling nervous. On Friday, the stock fell 5% and made its lowest close since June 2020. There is a good chance that this one may trace back to $390, if not lower.

Boeing (BA)

Boeing is getting closer to filling the gap at $155.