Month: September 2021

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This time the bounce was led by small caps and “back-to-normal” stocks – not only financials and energy but also travel and leisure. Airlines were the best performing industry for the week followed by oil & gas, and entertainment. The market is acting as if Covid will be gone in a few months or at least its impact will be reduced. Either that, or we just witnessed just another quick sector rotation and short covering that won’t last long. 

We saw a big spike in interest rates after the FOMC briefing last week. The Fed is acknowledging that inflation might be a bit higher and linger longer than previously expected. One small change in the Fed’s message can lead to a big move in financial markets which like to extrapolate and discount what could happen 6 months in the future. Long-term US Treasuries sold off and financials took off. With banks so strong, it’s hard to imagine SPY having any significant pullback any time soon.

Tech is not looking too shabby either. Software (IGV) and Semiconductors (SMH) never closed below their 50-day moving average and had a powerful bounce after the gap down last Monday. One would think that rising interest rates will hit richly-valued tech names, but so far we are not seeing any evidence of it. Stocks like U, SNOW, ZS, CRWD, BILL, ESTC, DDOG, ZI, TTD, AVLR, TEAM, CRM, DOCN, NET, NTNX, PLAN, SPLK, WDAY, PLTR, OKTA, DLO, etc. are either pushing higher or consolidating sideways. This is not a price action of a market worried about inflation too much.

Another thing that stood out late last week is the carbon emissions ETF – KRBN, making new all-time highs. This explains the strength in many electric vehicles stocks – TSLA, GOEV, LCID, FSR, etc.

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Last week was the closest I’ve seen to a “market of stocks” environment in a long time. While the S&P 500 and the Nasdaq 100 pulled back on large volume, there were plenty of current and former momentum stocks that pushed higher.

Seasonally, the third week of September (next week) is the weakest in the entire year. It should not be a big surprise if we see more turbulence. It would be normal if QQQ tests its August highs near 370 which coincides with its 50-day moving average. 

The S&P 500 hasn’t spent more than one day below its 50-day moving average so far this year. This might be about to change next week. From a big picture perspective, there is no reason to get overly bearish yet. If you look at a chart of SPY, you will notice that every swing low has been above the previous swing low while every swing high has been above the previous swing high. This is the definition of an uptrend. SPY is still in one until it closed below 436.

It is interesting to see so many FANG stocks under pressure – AAPL, GOOGL, FB, NVDA, etc. I don’t know if it’s the market worrying about new anti-competitive practices in Big tech or simply people freeing up some cash to enter smaller-cap, more speculative growth names. If it’s the latter, we should see the small-cap index Russell 2k (IWM) and growth/momentum ETFs like ARKK and FFTY start to outperform. If all of a sudden there’s a  spike in correlations, meaning small-cap IWM breaks below 220 and high-momentum stocks start to drop on big volume, then we might be in for a bigger correction. 

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September came and volatility has picked up with it.  Last week we saw quite a few breakouts reversing and good setups breaking apart. It’s about time some would say. We have become so accustomed to the slow grind higher than even a 1% down day seems like a big selloff. It’s all about perceptions. Pullbacks are a normal and even desired part of the cycle because they make every trend more sustainable and provide much better risk/reward entry points. We should not be afraid of them. We should welcome them. 

The S&P 500 seems on its way to test its 50-day moving average for the 8th time this year. Guess what happened in the previous occasions. Just when most became comfortable with the short side, SPY bounced fiercely and made new all-time highs. This behavior won’t continue forever but as of right now there’s little reason to believe that dip buyers won’t show up again. QQQ is still above its 20-day moving average. The semiconductor ETF – SMH made new all-time highs on Friday, albeit it finished weak near its lows of the day. The industrial metal ETF – XME, also tried to break out but ended near the lows of its daily range. Most importantly, we continue to see a strong market reaction to earnings reports. AFRM, LULU, MDB, ICUI, RH are just some of the big breakout examples from the past two weeks. The market sentiment is still bullish and dips are likely to remain buying opportunities. With that in mind, I am holding a large cash position and will focus on quick short-term trades for the time being.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

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Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email to get an idea of the content I share with members.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.