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How the mighty have fallen
FAANG Stock (Extended) (StockCharts)
Above is an expanded list of “FAANG” stocks, which includes Amazon (AMZN) and Microsoft (MSFT). Four on the list (Amazon, Meta/Facebook (FB), Google (GOOG), (GOOGL), and Netflix (NFLX)) are at or near 52-week lows. Microsoft is drifting deeper; Apple (AAPL) is trending sideways in a consolidation pattern. None of them have been in a rally since late last year.
Now let’s take a look at the QQQ:
1 year QQQ (stock charts)
The QQQ peaked in 4Q21 with a triple top. It then sold off and is now near a 52-week low.
China’s Zero Tolerance Policy Causes Serious Problems:
The omicron variant of the coronavirus has slipped through China’s border controls, causing the largest outbreaks since Wuhan in 2020. About a quarter of China’s population lives in cities currently under some form of lockdown. Most of Shanghai’s 25 million residents have been confined to their homes for more than a month. High-frequency indicators such as truck flows from city to city suggest China’s economy is shrinking and residents of several cities are struggling to find food and even dying from shortages of medicine.
The economic outlook ranges from bad to very bad. In the most optimistic scenarios, the pace of new outbreaks will slow as cities implement early and short lockdowns. Worst-case scenario, China could face multiple Shanghais each month in the second and third quarters, increasing the risk of a recession — something the country has not seen in modern times.
But China’s leaders are returning to their old ways to help:
China’s President Xi Jinping has boldly pledged to boost infrastructure construction in Beijing’s latest bid to bai out economic growth, a strategy that may prove less effective this time as authorities take a hardline approach to bringing Covid outbreaks under control.
Tomorrow’s GDP report doesn’t look promising:
GDP Estimates (Capital Spectator)
From the Capital Spectator:
The median Q1 estimate is a modest 0.7% gain, a fraction of the previous quarter’s 6.9% gain, according to the Bureau of Economic Analysis. Today’s revised Q1 Nowcast is roughly in line with the previous estimate released on April 12th.
Last week I released NY Fed and Atlanta GDP estimates, both confirming low readings. Given the bearish mood in the markets, a poor GDP reading could be a big selling trigger.
Let’s turn to the charts that show a clear message:
SPY 3 Months, 1 Month and 2 Weeks (Stock Charts)
The SPY is directly with tech support, as is…
QQQ 3 months, 1 month and 2 weeks (stock charts)
… the QQQ and …
IWM 3 months, 1 month and 2 weeks (stock charts)
…the IWM.
Most importantly, none of the 1-month or 2-week charts are showing any bottoming patterns.
Tomorrow’s GDP has only just become really important. The ride could be very bumpy.