Stock Markets Update – Benzinga

What a month it has been in all major markets so far following the Fed’s decision to raise 50 basis points. When the Federal Reserve chairman took the world by surprise by not considering raising interest rates by 75 basis points, it was no surprise that investors and traders alike knew how behind the curve the Federal Reserve was and remains to tame inflation. Since the decision, markets have seen a steep decline across the board.

NASDAQ 100 (NASD: $QQQ):

The technology sector follows the most basic harmonic ABCD pattern throughout the year. While the chart below may look messy, it shows what investors and traders need to know.

A quick summary of the price action YTD:

We had an initial ABCD pattern, complete from the January highs to mid-March, which made the long AB leg.

Then we had a pullback to the 200-period simple moving average, which was a precious 61.8% retracement, and then we went lower.

We’re currently at 100% extension where we saw a big jump on Friday, but with low volume.

The typical extension for a 61.8% retracement is the 161.8% retracement, which would give a price target of 229.53 for the $QQQ.

The next week or so will be critical in determining whether we see a jump to the simple 20-period moving average at a price of 319.50, or if this was just a short cover rally as traders didn’t want to short in the weekend given the headlines that could follow. One thing is clear: nothing that got us into this decline has been resolved, so caution remains on the downside regardless of any rallies.

S&P 500 (ARC: $SPY):

The S&P 500 represents a broader market perspective than the NASDAQ 100, yet the price action is similar, but with differentiated behavior.

A quick summary of the price action YTD:

We had a first ABCD pattern of the January highs completed in early March.

The longer ABCD formed its initial AB line after the completion of the above ABCD pattern.

The price bounced back to the 78.6% retracement and above the 200-period simple moving average in volatile price action. This type of secondary Fibonacci ratio is only found when the price action becomes more volatile than usual.

Price action managed to work its way below the 200-period simple moving average to form a cup and a formal head-and-shoulders pattern as shown in the chart below.

But again, it was a sham as the price bounced off the simple moving average over 200 periods and went down in a violent and fleeting fashion.

The typical extension for a 78.6% retracement is a 127.2% extension, suggesting that the $SPY could potentially be lower if it follows the pattern in the [374-376] reach.

As with the NASDAQ 100, we are in a wait-and-see attitude to set the direction for $SPY. Either the price action could lead to a higher 20-period simple moving average at a price of ~420, and then bounce lower, or we could go straight down. As with other indices and markets, nothing has changed in terms of what got us into this downtrend. Therefore, caution will remain on the downside.

VIX (CBOE: $VIX):

The S&P 500’s volatility index is in an interesting position as it nearly invalidates the upper CD leg of the ABCD pattern if it continues to fall towards the 200-period simple moving average. There is a small gap that will eventually be filled between the last two bars, but depending on the price action, this could be sooner or later. If the price eventually returns to the simple 200-period moving average, recent history has told us it acts like a baby’s bounce house by just bouncing off the moving average and making highs.

In general, this is a market that is driven by events, mainly by economic news and data and what various members of the Federal Reserve board have to say. In the coming week and weeks we will continue to receive important economic news and several members of the Federal Reserve Banks will speak and give us their views on monetary policy. The markets will react to what the data shows and what is said like everything else – especially good earnings are ignored.


This post Stock Markets Update – Benzinga was original published at “https://www.benzinga.com/markets/22/05/27284471/equity-markets-update”

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