The Inflation Roller Coaster Ride Continues to Weigh on the Markets

As the month of February comes to a close, the markets have come well off their highs. Last week’s selloff is in response to continued inflationary concerns. The Federal Reserve Bank has been consistently messaging that it will continue to raise interest rates until the economy slows, however, the economy continues to show signs of robust growth.

As seen above in the chart of the $SPY, price is below both the short term 10 period moving average and the intermediate 20 period moving average. Price has now crossed the 50 period moving average as well as putting price action on the SPY into bearish territory. Both the MACD (Moving Average Convergence and Divergence) signal line and histogram have gone into negative or bearish territory. Only the CCI (Commodity Channel Index) indicates that a short term bounce might be coming soon, as the CCI is showing on the upswing after being deeply oversold.

However, increased layoffs have started to occur. One example is $GOOG, which let go 8500 employees and 200 Robots that serviced them in their headquarters. If this trend continues, the Federal Reserve might soften its policy on interest rates.

Technology company’s as indicated by the $QQQ which have led January’s rally have led the way down in last week’s sell off.

$GLD, the Gold ETF also started to show signs of bouncing, after a very strong rally and then bullish retracement. This all confirms that volatility is still the order of the day, and it is best to be cautious.

Written by Michael DiGioia, Director of Education
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