Stocks Drop On January 5 As Fed’s Grip Grows Tighter

By Michael Kramer of Mott Capital Management

Tuesday, April 5, 2022 5:43 PM EDT

Grizzly bear roaring on Montana ridge

The S&P 500 fell by roughly 1.25%, while the Nasdaq finished down over 2%. Today’s drop quickly erased yesterday’s advance. The pattern in the QQQ ETF worked out quite nicely, with the ETF returning to the origin of the move higher.

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The whole drop started when a usually dovish member of the FOMC sounded very hawkish. That doesn’t bode well for tomorrow when the minutes are released.

FED'S BRAINARD: THE FED WOULD METHODICALLY TIGHTEN MONETARY POLICY THROUGH A SERIES OF RATE HIKES, BEGINNING TO DECREASE THE BALANCE SHEET AT A RAPID PACE AS SOON AS THE MAY MEETING.
— Breaking News | FinancialJuice (@Financialjuice1) April 5, 2022

From a technical sense, there is something much worse at play here, which is a rising broadening wedge. The QQQ closed just a touch below the bottom trend line, not enough to convince me the pattern has broken down. If it does break down, which I expect to happen, nearly all of the gains from the middle of March will be gone.

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S&P 500 (SPX)

The same pattern is present in the S&P 500.

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TIP (TIP)

The TIP ETF keeps dropping, and it isn’t even oversold yet. Meanwhile, the gap between the TIP and QQQ keeps growing wider. Just watch the TIP ETF.

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The relationship is powerful between the TIP ETF and Amazon. So I’d be rethinking my thesis if you are someone looking for Amazon to go higher from.

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Dollar (DXY)

If there wasn’t enough going on, the dollar index broke out today, rising above resistance around 99.40; the next stop is over 100. I know that is not much of a call, but it is crucial.

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