Stocks were hammered lower today as the bear market rally finally “cracked.” The Dow, S&P, and Nasdaq Composite all sunk. Tech shares suffered the largest losses on the day.
Statements from Fed officials over the last two days seemed to have scared investors. St. Louis Fed President James Bullard got bears excited yesterday in an interview on rate hikes.
“We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation,” Bullard said.
“I don’t really see why you want to drag out interest rate increases into next year.”
Then, this morning, Richmond Fed President Thomas Barkin amped up the hawkish pressure even further.
“The Fed must curb inflation even if this causes a recession,” Barkin said, before adding that the Fed “needs to raise rates into restrictive territory.”
“I’ve convinced myself that not getting inflation under control is inconsistent with a thriving economy,” he continued.
Barkin then said that he was supportive of “front-loading” rate hikes.
Yields soared in response as the market priced in a 75 basis point hike for September. Following July’s FOMC meeting, investors believed that a case could be made for a 50 basis point rate increase instead.
That narrative was effectively killed by Barkin and Bullard.
The bear market rally may be dead, too. The S&P closed below its bullish trend (yellow trendline) today as well as the 10-day moving average.
Unsurprisingly, Big Tech names suffered today. Microsoft (NASDAQ: MSFT) was among them, and the stock closed below the 10-day moving average. MSFT also closed below its bullish trend (yellow trendline) earlier in the week.
The stochastic indicator is showing bearish divergence relative to MSFT’s price action, too. It also suggests that MSFT has plenty of room to fall.
For those reasons, it might make sense to take MSFT short with a trade trigger of $282.79, below today’s low, as the general market faces a major bearish reversal of its own.
That’s historically been a bit of a “kiss of death” for the index following strong rallies. A move lower Monday would confirm the bearish breakout, likely leading to a major selloff.
Keep in mind that traders have been waiting for a “shortable moment.” Today’s selloff likely gave that to them. Wall Street and retail should both get in on the selling as they exact their revenge on overzealous bulls, who powered what one Wall Street bank called the “most hated rally.”