Stock investors are getting another wild ride this week with volatility extending to cryptocurrency markets in a big way. Unfortunately, a lot of new investors may be getting a first-time introduction to how painful a downturn can be in these highly volatile assets, which at one point yesterday saw several falls by as much as -30% and -50%.

Fundamental analysis

I also heard widespread reports of trading platforms and exchanges crashing again under heavy volume. Between early Tuesday and Wednesday afternoon, cryptocurrency markets shed some -$400 billion in total value, which analysts are blaming on a combination of factors, including a possible political crackdown coming from China.

Some Wall Street insiders believe the selloff in cryptos is part of a broader rotation out of speculative trades all together with investors’ risk-appetite fading amid inflation concerns and a possible pullback in Fed support. In other words, there is more talk of a “risk-off” mentality by some of the big traders as the safety net the Fed had in place might start to be removed.

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When the big money traders knew the Fed had a backstop and safety net in place during the pandemic they were more comfortably taking big risk on possible high-flying stunts. The “minutes” from the Federal Reserve’s April FOMC meeting actually showed some Fed officials being more open to discussing scaling back the central bank’s asset purchases at “upcoming meetings.”

Some on Wall Street interpret this to mean the Fed could bring it up as early as the next meeting on June 15-16, in turn raising the possibility that the central bank begins scaling back its bond buying and/or raising interest rates sooner than investors have penciled in.

But more importantly it means they might start to remove all the safety nets. With many asset classes up this high that could spook a few players. Stock bulls may also be finding it more difficult to look past the supply shortages and the resulting damage these logistical bottlenecks and dislocations may be inflicting on business growth and the broader economy.

Ford yesterday announced deeper cuts to its production plans due to the global chip shortage. The latest round of cutbacks includes the highly profitable F-150 pickup and Bronco Sport SUV, among others. Ford already warned in late April that it expected to lose half its planned second-quarter production due to the chip shortage, which is also forecast to ding full-year 2021 earnings by -$2.5 billion. It’s not clear if these latest production cuts were included in that forecast. It’s an industry wide problem, too, so other auto manufacturers are experiencing similar disruptions.

The move also means temporary plant closures and production slowdowns for at least 8 facilities across the U.S., Canada, and Mexico next month, possibly longer. If you recall, data in the last jobs report indicated that some U.S. auto workers that were furloughed earlier this year due to the production snags still haven’t been called back to work. Today, investors get more insights from the retail sector with results due from Kohl’s, L Brands, Ralph Lauren, and Ross Stores.

Other results of note today include Applied Materials, Hormel Foods, and Palo Alto Networks. Today also brings the Philadelphia Fed Manufacturing Index, which we mistakenly said was due out yesterday… sorry for the confusion.

Technical analysis

sp500 may 20 2021

For SP500 today (May 20, 2021) the neutral zone is 4083.5 – 4148. The middle-strength level with this zone is 4115.75, weak levels – 4099.75, and 4131.75. Holding below 4083.5 can bring prices to 4067.75 (weak level) and 4051.75 (middle-strength level). On the other hand, if the price sustains above 4148, we can expect 4164 and 4180 in extension. Note, mentioned levels should offer support/resistance before taking a trade. Price action confirmation is a must! 

On a daily chart, the price is very close to support. So, double caution is required.

SP500 Near Daily Support – Time To Panic? by Inna Rosputnia

Wishing you a great week!

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