{"id":59181,"date":"2022-03-12T14:52:16","date_gmt":"2022-03-12T22:52:16","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=59181"},"modified":"2022-03-13T23:46:23","modified_gmt":"2022-03-14T06:46:23","slug":"stocks-running-on-low-fuel-ahead-of-fed-with-few-reserves-the-market-breadth","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2022\/03\/12\/stocks-running-on-low-fuel-ahead-of-fed-with-few-reserves-the-market-breadth\/","title":{"rendered":"A Stock Market Running Low On Fuel Ahead of A Fed With Few Reserves – The Market Breadth"},"content":{"rendered":"\n

Stock Market Commentary<\/strong>:<\/h2>\n\n\n\n

The fresh sag in the S&P 500 and the NASDAQ makes the stock market look like it is running low on fuel. The damage is timely just ahead of the next meeting of the Federal Reserve. In these circumstances, I would expect the Fed to deliver soothing words to the stock market and perhaps even promise or deliver fresh bouts of easy money monetary policy. Unfortunately, this time is truly different. The Fed is supposed to continue the glacial pace of normalizing monetary policy but finds itself more trapped than ever. <\/p>\n\n\n\n

Inflation is soaring. Prices promise to remain elevated for many months to come as the global economic order gets turned upside down by World War Three. The economic saber-rattling between China and the U.S. over Russian sanctions promises to make an awful situation yet worse. The Fed may want to slash rates to negative levels and print a fresh trillion or so to load up on assets, but such a move would help send high prices even higher. If the Fed does nothing, borrowers can use rock bottom rates and an otherwise healthy economy to arbitrage inflation by buying on the cheap in order to chase scarcity. More and more money chasing fewer and fewer goods is the classic inflation dynamic. If the Fed continues as previously planned, a rapid descent into a recession seems like a lock.<\/p>\n\n\n\n

The Fed has few reserves and no good options for dealing with today’s challenges. The Fed’s worst collective fear is to receive blame for another economic calamity. Yet, the Fed has boundless creativity. I cannot wait to see what happens this time around…especially given financial markets still expect the Fed to aggressively pursue rate normalization this year.<\/p>\n\n\n\n

\"Despite<\/a>
Despite today’s turmoil and chaos, financial markets still expect the Fed to plow ahead with a series of rate hikes. The market somehow thinks there are high odds for the Fed to go from zero today to as high as 2% by December. Source: CME FedWatch Tool<\/a><\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

The Stock Market Indices<\/strong><\/h2>\n\n\n\n

The S&P 500 (SPY) dropped 4 of 5 trading days last week. A 2.6% one-day gain gave the index enough buffer to avoid closing out at the lows of the week. That low of the week was also the closing low of the year and a 9-month low. I was tempted to buy into Monday’s 3.0% drop and even the next day’s 0.7% loss, but AT50 (see below) was nowhere near oversold. After the subsequent one-day rally fizzled, I refreshed my SPY call spread on Friday as I do not want to go into any given week without some kind of long position to play for a bounce. Still, I strongly prefer at this point to wait for oversold readings to do any major buying.<\/p>\n\n\n\n

\"The<\/a>
The S&P 500 (SPY) shrunk from looming resistance from its downtrending 20DMA.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

The NASDAQ (COMPQX) entered and stayed in bear market territory last week. A technical bear market starts once an equity falls 20% from its all-time high. Unlike the last trip (that created the 2022 intraday low), there was no celebratory buying by the algorithms and traders who automatically pounce on such milestones. The tech-laden index ended the week with a complete reversal of all its gains from 2021. Now the 2022 intraday low is in play as a test of support. Like SPY, I went ahead and refreshed my QQQ call position “in case” buyers get ahead of the imminent test of support.<\/p>\n\n\n\n

\"The<\/a>
The NASDAQ<\/a> (COMPQX) entered bear market territory, wiped out the remaining gains from 2021, and set a new closing low for the year.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

Relative to the other major indices, the iShares Russell 2000 ETF (IWM) looks quite comfortable in its churn. Monday’s 2.5% loss stopped short of testing the February closing low. Friday’s 1.6% loss stopped far short of testing Monday’s low. Small caps look like a notable contributor to keeping AT50 and AT200 (see below) aloft and out of oversold territory.<\/p>\n\n\n\n

\"The<\/a>
The iShares Russell 2000 ETF<\/a> (IWM) lost 1.0% for the week and still sits right in the middle of a new trading range.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n