Maybe It’s Time For The Market To Stop Fighting The Fed?

By Michael Kramer of Mott Capital Management
Monday, August 29, 2022 6:42 PM EST

The S&P 500 fell 67 bps on August 29, a modest decline following the sharp sell-off on Friday. The index had a very weak close, finishing below the afternoon’s lows. Additionally, it appeared to spend the day consolidating after filling the opening gap.

The S&P 500 futures may show the picture the best, as it appears to have formed a bear flag. The flag started developing very early today and continues to consolidate all day. If the flag breaks lower, which I think it will, then the S&P 500 should fall comfortably in that 3,950 range we have been talking about for some time.

(Click on image to enlarge)

If it wasn’t clear that the Fed needs stocks to fall to tighten financial conditions to beat inflation, it should be very clear now. The Fed’s Neel Kashkari noted today: 

He also said: 

In case those comments weren’t clear, he also said: 

So as the saying goes, and as I have cautioned for the past several months, do not fight the Fed. The Fed needs asset prices to drop and credit spreads to widen to tighten financial conditions so the economy can slow and inflation can fall. Very clear and very simple to understand. So if you want to be bullish, go ahead, but if Kashkari’s comments aren’t the clearest indication that the Fed needs assets and stock prices down, then I do not know what will be.

Microsoft (MSFT)

Microsoft has a similar bear flag pattern and a huge gap that remains open from when the company reported results of around $250.

(Click on image to enlarge)

Amazon (AMZN)

Amazon fell below support on Friday at $132, and a few significant gaps are at lower levels. The most notable gap is around $120, and another around $115. If the market heads lower, as I expect, then those gaps will likely fill at some point, I would think.

(Click on image to enlarge)

Tesla (TSLA)

Tesla was down today, but it hasn’t broken the head and shoulder pattern’s neckline. That $280 region will be crucial; if that fails, I think we will see a significantly lower price.

(Click on image to enlarge)

More By This Author:

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Stocks Rise Slightly On August 24 Despite Rates Move Sharply Higher
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Disclosure: Michael Kramer and the clients of Mott Capital own MSFT.

Disclaimer: Mott ...

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Texan Hunter • 2 years ago • Member's comment

Maybe people buying discounted stocks isn’t fighting the fed, it’s all really stupid. The main stream media is a joke. Sure there are days you can play off the momentum, but people also gotta realize these media entities are about making money and have bills to pay, nothing gets clicks like peddling fear smut. Every time I see “don’t fight the fed” I get this tiny little rage pang, because it’s such generic commentary, just dumb. I don’t even know what it means. I’m not selling my stocks right now. Is that what they are driving at? If it drops another 20% I’m still a holder and a buyer.