The charts in this video are powered by MarketSmith
What really happened last week from a big picture perspective – anything high-growth and cyclical that had shown even remote relative strength finally caved in – the mega caps QQQ, semiconductors SMH, homebuilders XHB, financials XLF. It might seem dramatic to talk about a market correction with the S&P500 so close to its all-time highs and still above its 50-day moving average but there has been some serious damage under the surface. Many of last year’s momentum leaders are down 40-50% from their highs. There is a new group of stocks getting hit every week while the most-oversold sectors are having big 1-2-day short-covering rallies. All of this has created extreme volatility and choppiness which require all traders to be extra nimble or just step aside a wait it out.
The Fed wants to accelerate tapering and plans to raise interest rates three times next year in order to fight inflation. Initially, the market read this as complacency and underreaction. All stocks had a major rally on Wednesday afternoon. Most were given back on the following day. Friday was a quadruple option expirations day and we had some major mean reversions. The worst-hit groups in the past few weeks had a sizable bounce – biotech and high-growth, high-multiples software stocks. In the meantime, financials, homebuilders, mega-caps, and semis showed relative weakness. At least this market is not boring and riddled with high correlations.
SPY, QQQ, and SMH are now looking vulnerable to further downside if they lose their lows from Friday. The odds are that we will see more choppiness next week.
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.
PERFORMANCE
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.
