Momentum Monday – Choppy, Volatile Market

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As widely expected, the Fed raised interest rates by 50bps and started to reduce its balance sheet. The initial enthusiasm last Wednesday was immediately followed by heavy selling the rest of the week. One day up 5%, the next day down 6%.  Excessive volatility which means a lot of choppiness and frequent reversals is a typical price action for a bear market. 

Tech has been dismantled this earnings season. QQQ is trading below its volume-weighted average price since the Covid lows in March 2020. The small-cap growth ETF – IWO, has given back its entire profit for 2021 and 2020. The rips to declining 20 and 50dmas keep getting shorted on a regular basis. We are yet to see the real panic in the tape. So far, the selling has been slow and steady – the kind that can continue a lot longer than most expect. 

There are slim pickings on the long side – oil and gas names are holding the best as crude oil is setting up for another potential breakout and natural gas is at 12-year highs. If the market is really worrying about a global recession, oil and gas will also get eventually hit but until then, they are in an uptrend and uptrends tend to keep going higher until there’s a high-volume breakdown that changes the sentiment/narrative.

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