Momentum Monday – The End of Negative and Zero Interest Rates?

The charts in this video are powered by MarketSmith

The S&P 500 came close to its 50-day moving average and reversed. The Nasdaq 100 tested its 200-day moving average and pulled back lower. Finding some resistance after going up for several days in a row is not a big surprise. It’s how markets move – every rally and every selloff have counter-trend reactions. What matters is what happens afterward. The bearish scenario for next week is clear – anything that loses its lows from Friday (Feb 4th) can be shorted for a quick trade. For example, if SPY loses 444, it will probably fall to 440. If QQQ loses 352, it is likely to test 340. If those breaks happen, most individual stocks will follow.

Now that we covered the bearish scenario, we can focus on the alternative. Last week brought new bullish arguments. We finally saw some recent IPOs like BROS and HOOD wake up and push higher. This is a clear sign of improving risk appetite. In the meantime, quite a few oil & gas stocks broke out to new 52-week highs. Commodity-related names are currently the only momentum stocks left. Financials are quickly catching up with the spike in interest rates. XLF is back above its 50-day moving average.

The era of negative bond rates is coming to an end and this has led to a repricing of all risk assets. Is the repricing over? Probably not for everything but plenty of software, Internet, biotech stocks and crypto fell 50% to 80% in the past three months. That’s not a bear market; that’s a crash. The silver lining last week was that the spike in interest rate didn’t lead to further downside in those risk assets. On the contrary, they bounced. This could be the proverbial dead-cat bounce that just goes nowhere fast or an acknowledgment that even if rates go from 0% to 2.5% quickly, some businesses will grow into their valuations, eventually. Don’t get complacent. Many of those stocks are not going to go back to their all-time highs for many years if ever. That’s how financial markets work. A constant cycle of booms and busts and new trends.

We are still in the midst of earnings season. If Facebook, Amazon, and Snapchat can trade like small-cap biotech stocks, you know that anything is possible. No stock is safe, no bet is a sure thing. My keyword for 2022 was higher volatility and this is exactly what we have been seeing so far. Adjust to the new market reality because it can last much longer than you expect.

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.


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.