Stocks Drop On February 22 As Fed Jitters Rattle Investors

By Michael Kramer of Mott Capital Management

Tuesday, February 22, 2022 9:03 PM EST

Big brown bear (Ursus arctos) in the mountain

The S&P 500 finished the day lower by 1% as the market grapples with the ebb and flow of news headlines. As I have highlighted on a few occasions, I think most of this volatility, comes from concerns about what the Fed is going to do. There was no flight to safety in the market that would suggest the move lower was related to the Russia conflict. The dollar was down, and rates were up. Typically, yields should fall in a flight to safety, and the dollar rises. With the exact opposite happening today, it would suggest more Fed-related concerns over inflation.

S&P 500 (SPX)

The S&P 500 managed to finish off the lows, with a late-day surge around 2 PM. But I have to say from watching the market, liquidity is really thin, and the markets are jumping by large amounts in the matter of a minute, which is more a function of a lack of depth on the top of the book.

The chart below shows how the top of the book has really narrowed, and I think that was very visible in today’s trading. It is important to follow because a thin book means you can see big moves on relatively low volume, which is not great for market stability.

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The S&P 500 closed at its lowest level since October, which could be crucial. What may prove more important is the closing price of 4304, which was just above support. Additionally, the RSI is still trending lower, and the advance-decline did make a lower low. These are all bearish indicators, over the near-term.

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NASDAQ

Meanwhile, the number of stocks in the NASDAQ making new highs minus new lows on a cumulative basis is still making new lows. At least in recent history, based on what I can tell, the NASDAQ has not bottomed in the past while the number of new lows was still falling. So as long as this metric keeps dropping it is probably a good indication the bottom isn’t in yet.

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Tesla (TSLA)

Tesla fell hard today, nearly finishing the day at its lowest price since October. It appears that all of the trend lines have broken, and it seems possible this stock now has further to fall to around $775.

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