MarketSurge powers the charts in this video.
The Nasdaq 100 (QQQ) is already down 22% from its 52-week highs. It tested its August low from last year. I wouldn’t be surprised if it overshoots to 400 and then rallies to its 20-day moving average. The S&P 500 is down 17% from its 52-week highs. The next area of potential support is around 500-480. The damage in individual stocks is even more pronounced. META is down 31%, AMZN and GOOGL are down about 28%, AAPL -27%, NVDA -38%, TSLA -51%, PLTR -41%, HOOD – 48%, RDDT -53%, APP -58%, CEG -51%, VRT -62%.
The market is sending a clear message. A tariff war with the rest of the world is likely to lead to a recession. The average drop in SPY during the last ten recession was 31%, though declines ranged from 14% to 57%. A 20% drop in SPY from its 52-week highs would mean testing 490. A 30% drop would mean a decline to 430.
Powell spoke on Friday and reiterated what he said previously. There is not enough evidence to panic and cut rates now. In other words, the Fed is not going to try to proactively avert a potential crisis because it might break something else. The Fed will show up when there’s clear evidence of unemployment spike. Unemployment is a lagging indicator; therefore the Fed is likely to get involved after most of the correction is over.
We finally saw clear signs of panic selling last week. Even the groups that had held well recently, came under distribution – energy, gold miners, utilities, China. Such high correlations are typical for forced liquidation when people sell not because they want to but because they must. The silver lining is that such selloffs often precede a strong bounce. Let’s not forget that some of the most powerful rallies happen during bear markets. Nothing goes down in a straight line. The bear markets are full of false breakdowns, so one has to remain nimble and willing to play both sides of the market.
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