Momentum Monday – High Volatility and High Correlations

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The Nasdaq 100 had a 7% range last week but it finished flat. Correlations have been extremely high as they usually are during corrections or bear markets. Lately, stocks have been moving in tandem regardless of fundamentals or sector belonging. Just look at the intraday charts on Friday – everything is looking very similar.

Unless your view is longer-term and you are slowly accumulating an index or a strong business at progressively lower prices, the most common-sense way to make money in this environment is intraday trading. This type of market behavior usually doesn’t last too long, except if it’s a new long bear market which is clear only in hindsight. Eventually, things calm down and multi-day swings become easier.

The new earnings season is just warming up. So far, the market has been fading every strong earnings report (minus Apple) and slamming any remote weakness. This is the first earnings season in a long time where we haven’t seen a breakout and a proper follow-through in the next few days. It’s still early but the price action so far speaks volumes about the current sentiment. 

Last week, the Fed confirmed what they have been saying for a while – bond purchases will end in early March and then they will start to gradually increase interest rates. The market initially sold off after the FOMC meeting, only to bounce towards the end of the week. Let’s see if it can follow through next week. Quite a few earnings reports are on tap and they will have a major impact on the market’s direction – GOOGL, AMZN, FB, QCOM, PYPL, AMD, XOM, etc. It’s important to remain flexible and open-minded to different scenarios. If there’s follow-through, SPY can test 450 where it will encounter resistance. If Friday’s low is lost, SPY is likely to tet 420-400.

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