Category: Market News, Research & Commentary

This week looks to start off on a slow note, pending any overnight news, with no US economic data being presented until PPI numbers Tuesday morning.

Import price levels will be interesting to see, especially given that ports are still backed up & going to unique unloading strategies to account for winter weather.

While ships will be using less fuel by traveling slower from Asia, there will be additional costs as many of these journeys are now 7-10 days longer than normal.

Wednesday also has the homebuilder index numbers, and the FOMC announcement, and Thursday will shed light into unemployment, housing starts, as well as manufacturing data such as the PMI.

Last week the NASDAQ gapped back up to around the levels it was at at the end of November.

Volume got back above the year’s average, but their MACD is still bearish/flattening out, with the 10 Day Moving Average just below the bottom range of Friday’s low price.

SPY looks to have more momentum, with a bullish MACD crossover last week on slightly above average volume, settling in for the week <1% off of all time highs.

However, it will be interesting to see if this climb can continue on into a Christmas rally.

US Home Construction (ITB), Rare Earth/Strategic Metals (REMX), Healthcare (CURE) & Consumer Goods (UGE) ETFs All Leading The Way Bullishly

US Home Construction ETF ITB is showing expectations that the homebuilder data this week will be good, as it continues its bullish climb.

Look for their RSI to drop a bit in the near-term, as it is currently overbought at 73.

Three of their last 4 sessions have closed lower than they opened, which is an interesting sentiment point, but their MACD looks strong still.

REMX, an ETF that tracks companies that produce, mine & refine rare earth & strategic metals has had a strong year.

While they’ve stalled out a bit in this current quarter, there may be a good entry point for a position in the near-future, with the 10 Day MA being bullishly crossed by their price level Friday.

CURE, the Direxion Daily Healthcare Bull 3X Shares ETF has had a strong year, including 7 consecutive days of gains.

With an RSI that is still relatively neutral/beginning to look overbought, there looks to be more near-term momentum for this & other similar names.

Their recent volumes have been slightly above average as well, with a bullish MACD crossover in the middle of last week also there to provide additional upward momentum.

UGE has also had a solid year, with a 44% increase excluding dividends.

While volumes recently have been low, their MACD appears to begin to be turning bullish, which paired with a neutral RSI could set them up for solid short-term momentum.

China Internet (CWEB), Physical Palladium (PALL), Fallen Knives (NIFE) & Emerging Market eCommerce (EWEB) ETFs Have All Lagged Bearishly

CWEB, the Direxion Daily CSI China Internet Index Bull 2X ETF has had a difficult year, losing ~75% of its share price in the last year.

Volume has increased substantially for CWEB since mid-summer, and there could be a change in price direction in the near-term, with a bullish MACD crossover impending, and an oversold RSI.

Physical Palladium names have also had a difficult year, with the end of November & early-December seeing more losses.

Two gaps down to end the last week looks like they may still have more pain in the near-term, however they have not fallen to the lows that they saw in late November, and have an oversold RSI.

NIFE is an ETF that tracks stocks that have recently fallen, but have strength in their financials that can make them rebound to outperformance.

What is interesting about NIFE is that they offer a 5.76% dividend yield, which is higher than most names that we cover in this section.

Their MACD is beginning to look healthier, but it is tough to say if this will be able to turn around in the near-term or not based on their overly light volume of recent.

They also tend to move in gaps up or down, which also makes it a bit speculative.

EWEB ETF is another under-performer for the year, which tracks emerging markets internet & eCommerce stocks.

Emerging markets have been an area of concern in many sectors this year, with EWEB’s holdings being no different.

This ETF may get some upward momentum in the near-term courtesy of their MACD about to crossover bullishly, and their RSI is oversold.

However, most of the last 4-5 months has been on extremely light trading volume when compared with the rest of the year’s chart, signaling that the sentiment there is still somewhat a “wait & see”.

Tying It All Together

This week will be interesting as markets will have a lot of data to digest, as well as updates related to COVID variants.

I will be most interested in seeing what types of trading volumes we see, with people beginning to prepare for the holidays, while also trimming gains or losses from 2021’s returns.

Overall, it looks to be an interesting week ahead.

*** I DO NOT OWN SHARES OR OPTIONS CONTRACTS FOR ANY OF THE ETFs LISTED ABOVE ***

Volatility began creeping back into financial markets this past week, just in time for some holiday discounts.

What is particularly interesting about it this time around though is that the levels of volume are far above average for the year, and above where they were in other, more recent volatile periods.

SSO, the ProShares Ultra S&P 500 ETF’s price settled below its 50 Day Moving Average, with an RSI of 42.

This shows there is still more pain to come in the near-term for the S&P 500, as concerns over omicrom, as well as the potential lockdown measures that will take to combat it hang over investors’ heads.

With much discussion about the rate of tapering & rate hikes via the Federal Reserve, the NASDAQ tech-heavy index also saw above average volume in their declines.

While their RSI also signals that there is more near-term losses to come, they closed just above their 50 Day Moving Average.

Still, traders should be on the lookout for the death cross that each index is inching closer & closer towards each passing day.

20+ Year Treasuries (TMF), Semiconductors (SOXL), Industrial Real Estate (INDS) & Technology (TECL) ETFs All Have Had Bullish Runs

TMF, an ETF that tracks 20+ Year Treasuries has enjoyed strong gains recently.

Their moving averages have begun signaling more bullishness is to come, although there may be some decent entry points in the near-term as their RSI will need to cool off while they establish a new price range.

Semiconductors have somewhat stalled out at their top range, as seen with SOXL ETF.

SOXL’s volume has remained about average, but with a now neutral RSI & continuing issues with supply, there may be more positive pressure on these names.

INDS ETF, which tracks industrial real estate has also been on a steady incline all year.

INDS’s recent volumes have also been above average for the year, as their RSI cools down from overbought conditions this last week.

Watch their MACD, which looks to be signaling more growth in the coming days as it begins to flatten/curve upwards.

TECL, the Direxion Daily Technology Bull 3X Shares ETF is cooling down with all of the talks of rate hikes & tapering, which may provide a decent entry point in the near-term.

Their RSI is now dipping into the oversold side, although they may have a bit more room to fall based on their MACD & elevated volume levels compared to the year’s averages.

Genomics (ARKG), Aerospace & Defense (DFEN), Betting & iGaming (BETZ) & Streaming Services (SUBZ) Are All Bearish & Lagging The Pack

ARKG, an ETF that seeks exposure to securities that are involved in genomics has been horribly lagging the market recently.

Their RSI is severely oversold, which may signal a coming rebound in the near-to-mid term.

However, like everything else, their volumes have recently been above average, signaling there will likely be more pain to come before the rebound.

DFEN ETF, which tracks aerospace & defense securities has also been underperforming.

They too have an oversold RSI & higher than average volume.

However, their MACD looks to be turning, which may prove to be a reversal from their recent decline in price after multiple gap down days in the last couple of weeks.

BETZ, the Roundhill Sports Betting & iGaming ETF is another one with a heavily oversold RSI.

What’s remarkable here is that nearly every day since the end of October their share price has continued to fall.

With an RSI of 16, they should at least be able to begin establishing a new range here, unless broader market volatility sends them deeper into descent.

SUBZ, the Roundhill Streaming Services & Technology ETF has also been facing difficulty since launching last February.

This is another name that has seen nearly all downward momentum over the last month, with an extremely oversold RSI.

They haven’t had much in terms of severe trading volume since they were first introduced to the market, which shows many investors are likely still weary of them & their holdings.

Tying It All Together

Next week looks to be interesting, as we await news about the omicron variant of COVID, as well as learn if there are more clues coming from the Federal Reserve about the expected taper pace.

Pending Home Sales, PMI Data & Unemployment Data will also be closely watched, after this week’s unemployment numbers left many folks scratching their heads.

Based on the technicals that we reviewed above, it looks like there will be a bit more volatility as we move closer to the end of 2021.

Earnings calls continued on throughout the week, and markets continued to climb steadily.

Upcoming news about the new Fed chair should be announced in the coming days, which may bring a temporary shock to stocks in the event that Powell is not selected again.

The S&P 500 & NASDAQ are both beginning to signal that there should be a bit of a shakeup in the near future when looking at their technicals

The SPXL ETF that tracks the S&P 500’s MACD had a bearish crossover, although on somewhat weaker than average volume last week, bringing their RSI back from overbought territory.

The NASDAQ tracking ETF TQQQ remains in overbought territory in their RSI, although their MACD has rebounded from what was potentially going to be a bearish crossover.

TQQQ’s volume has been a bit stronger than usual this week.

Consumer Discretionary (WANT), Carbon (KRBN), 5G Economy (WUGI) & Russell Growth Over Value (RWGV) All Lead The Pack

The WANT ETF that tracks names from the Consumer Discretionary sector has continued to see success, climbing higher this last week.

They look to have more steam to climb higher based on their MACD, however watch the currently overbought RSI as it may signal that there will be a bit of selling pressure in the near-term.

KRBN, a Global Carbon ETF has been trading on higher than average volume recently, and climbed to new highs for the year.

Again, while their MACD is still bullish, watch their RSI.

At 76, their RSI is still overbought & may indicate a bit of a sell off in the near-term as it begins to establish a new price range, where a better entry price may be possible.

WUGI, an ETF that contains names that are related to 5G & the future of the economy has also been climbing higher recently, although somewhat stalled out this week.

While their RSI was overbought prior & has now dropped back below the 70 level (highly overbought), there may be a bit of a drop in the near-term judging by their MACD.

Their volume has been very light compared to the rest of the year’s average.

Another area to keep an eye on is the growth names within the Russell 1000 index.

RWGV is an ETF that tracks these names, and has seen growth this year.

Their RSI is also high; at 74.7 signaling that they are currently overbought & may have some selling in the near-future.

However, their MACD is still bullish, after coming near a bearish crossover last week.

China (GXC), BioTech (LABU), Dividend Revenue (RDIV) & Global Infrastructure (GII) Stocks & ETFs Are All Lagging The Rest Of The Pack

It’s no surprise that companies in China are not being viewed favorably in the last few months.

GXC, the SPDR S&P China ETF has continued to struggle, having another bearish MACD crossover last week.

With a relatively neutral RSI, this downtrend may continue in the near-term.

LABU, an ETF that tracks biotech names has continued to fall, on higher than average volume.

Their RSI is approaching the oversold level, but their moving averages suggest that there is more pain to come in the near-future.

RDIV is another ETF that’s moving averages seem to suggest more trouble in the near-future.

Last week they had a bearish MACD crossover, and with a neutral RSI of 46 there looks to be more losses to come in the near-term.

Note too though that their volume has been very low recently compared to the rest of the year’s average.

However, they do offer a 4.77% dividend yield, which can provide some protection & cushion against losses.

GII, an ETF that tracks global infrastructure focused stocks & securities has also seen recent troubles, with a gap down on Friday that went below their 50 day moving average.

While their RSI is near the oversold level, their MACD is currently very bearish.

GII has also been trading on weaker than average volume recently.

Tying It All Together

There are still more earnings calls to come this week, there should be plenty of interesting swings in the markets.

With indexes near or at highs & showing overbought conditions, there should be some selling action in the near-term as traders take profits & reposition themselves for the new year.

However, the week will be shorter in observance of the Thanksgiving holiday in the US, which is something to take note of.

*** I DO NOT OWN SHARES OR OPTIONS FOR ANY OF THE NAMES LISTED ABOVE ***

Earnings calls continued last week, while focuses on bonds, energy & supply chains continued to tie up the news feeds.

A bit of the built up buying pressure was released from the S&P 500 & NASDAQ, both of whose RSI’s dipped back below overbought territory.

More correcting looks apparently based on the curves of both indexes’ MACD lines, shown in the charts below for the SPY & QQQ ETFs.

SPY, the S&P 500 ETF’s MACD is about to bearishly crossover, and QQQ’s for the NASDAQ is also bearishly curved, with the crossover to come in the coming days.

Given their high RSI’s, it is certainly time for a little more pullback from a technical perspective.

Transportation (TPOR), Blockchain & Data Transformation (BLOK), Lithium (LIT) & Financials (FAS) ETFs All Among The Bullish Recent Performers

Transportation stocks contained in the ETF TPOR all have had a good performing November to date.

While their MACD is about to bearishly cross, there looks to be a new range establishing here as their RSI evens out, possibly making space for a new position’s entry.

Volume has certainly tapered off after their major outperforming day.

Blockchain & Data Transformation stocks have also done well in recent weeks, earning BLOK a spot amongst our top rated ETFs by technicals recently.

Recent volumes have been above average for the year, as their share price evens back out after touching a new high for the year.

Another MACD to watch, but again, their RSI also needed to simmer a bit from being overbought for a period of days.

Lithium names have also been performing well, with more room to run in the near-term.

Watching LIT ETF’s MACD it appears that there may be another near-term bump in the making, as their RSI is still not in overbought territory.

Financial names have remained steady, although FAS has dipped a bit this week.

This may be a good point of entry into a new position for FAS.

With their MACD already bearish & an RSI approaching neutral, this looks to be a time where planning an entry will be beneficial as a trade or investment.

The recent price decline is on below average volume, implying that it is more centered around profit taking & not a major fundamental issue.

Asia Pacific High Yield Bond (KHYB), International Online Retail (XBUY), Yen (YCL) & South Korea (FLKR) ETFs Are Among The Most Bearish Names Recently

Not surprisingly, Asian High Yield bond ETF KHYB is underperforming recently amid the Evergrande scandal & news that other companies are in similar trouble.

Volume continues to trade above average for KHYB, with a neutral RSI & bullish MACD, but this is not a name that looks to be out of the woods just yet.

International Online Retail ETF XBUY has also suffered recent underperformance, making a new low for the year recently.

With a neutral RSI & relatively flat MACD this will be a name to watch, as it tries to break out above its 50 Day Moving Average.

Yen ETFs have also struggled recently, with YCL being one of the recent under-performers in our technical scans.

While YCL trading volume recently has been light compared to the rest of the year, there may be more pain in the near-term for this name based on the curve in their MACD.

YCL has been making higher lows & higher highs of recent, but is still trading at the bottom of its price range for the year.

Their RSI is slightly oversold though, which may signal an impending bounce.

FLKR, the South Korea focused ETF has also been having tough times recently, especially after a large decline last week.

Their MACD & RSI are both relatively neutral, and recent volumes have been below average for the year.

They still face downward pressure from their moving averages, but are showing signs of reversing course in the near-term.

Tying It All Togher

This will be another week of earnings calls, political theater & discussions about inflation & supply chains across the globe.

Based on the charts we’ve looked at, there may be more correcting of price levels in the near-term, with many technical indicators running hot at the moment.

Retail sales & housing starts numbers will be interesting to watch, with both of those industries being mentioned in our weekly lists recently.

It will also be interesting to see how seasonal employment begins to impact reported numbers, with mall Santas & Christmas-time help beginning to be hired.

After a week that was centered around earnings, the Fed announcements & climate discussions, stocks generally continued to climb higher.

With more earnings calls to come this week, it seems that we are positioned for more of the same market action.

Interestingly enough, both major indexes closed lower than they opened by the end of the day Friday, but still accomplished day over day gains (SSO & QLD pictured).

It will be interesting to see if that risk-off sentiment continues into next week & if investors will be interested in taking their gains & going home safely by the end of another earnings week.

Homebuilders & Supplies (NAIL), RoboCar Disruptors (VCAR), Pharmaceutical & Medical (PILL) & Basic Materials (UYM) Stocks & ETFs Leading The Charge

ETFs focused on homebuilders & their suppliers have been experiencing a bit of good fortune in the recent times, with NAIL, the Direxion Daily Homebuilders & Supplies Bull 3X Shares ETF continuing to climb higher.

Robotic Cars also continued to climb higher sharply this week, despite negative/uncertain news circulating about Workhorse WKHS stock, amongst other names in the space.

VCAR, the Simplify Volt RoboCar Disruption & Tech ETF saw much stronger volume than average, although their RSI is overbought, so there may be some near-term drops as a new price range is established.

It comes as no surprise that Pharmaceutical & Medical names have been having strength recently.

PILL, the Direxion Daily Pharmaceutical & Medical Bull 3X Shares ETF climbed higher this week on above average trading volume.

This is another one that is in overbought territory based on their RSI though, so investors may think to time an entry after they settle into a new range, instead of chasing the tail end of recent momentum.

Basic Materials stocks also have been experiencing strength in the last month.

UYM ETF, the ProShares Ultra Basic Materials ETF continued to climb higher, with above average volume on Friday’s gains.

However, I would be keeping an eye on their MACD that is beginning to turn over a bit, and also their 50 & 200 Day Moving Averages which are just over 1% apart from one another.

The MA’s should separate further in the coming days, but with a slightly overbought RSI this one may warrant buying some puts as well to be safe.

Of course, there are other ETFs out there that cover the same niches of the market, some of which may be better suited to your portfolio’s risk profile.

Emerging Markets Healthcare (KMED), Social Media (SOCL), Steel (SLX) & Short-SPAC (SOGU) ETFs Are All Lagging The Market Trends

Interestingly enough, while PILL has climbed, the KMED ETF has been lagging.

This is in-line with general sentiment around emerging markets at the moment, but does not align with the broader bullishness in the healthcare & pharmaceutical space.

Social Media companies have come under more fire & scrutiny than usual recently, leading to a dip in SOCL since mid-October.

Their volume has been lighter than average recently, with prices seeing stability in the $61-62 range, needing to be able to break out above $62 to reverse course.

With a relatively neutral RSI, SOCL could begin to climb again in the near-term, although I would be focusing on the relationship between the 10 & 50 Day Moving Averages before deciding an entry-point & consider also having some puts for protection from potential further price declines.

Another interesting lagger is SLX, the VanEck Vectors Steel ETF.

Despite builders, suppliers & basic materials names climbing, steel here is underperforming.

SLX is also trading on below average volume, with a slightly oversold RSI.

Lastly, the short-SPAC ETF SOGU has also been lagging, meaning that the 25 SPAC-names they track are outperforming or there is good sentiment behind them.

SOGU’s RSI is about to enter very-oversold territory, but there is limited data available on them as they began trading in May.

Tying It All Together

As mentioned prior, I try not to repeat names & sectors/industries week over week in order to cover the broadest amount of relevant information.

While ETFs are not perfect trackers of market sentiment, a lot can be inferred about specific areas of the broader markets by tracking their performance.

Given that we are still in earnings season, it is important to watch the technicals of these ETFs & how they move in relation to news about specific companies that are held in their basket.

It is also important to then check how much the % change is compared to the % of the basket that is held in each individual stock, as this may present opportunities to get in at better prices than the ETFs true, current value.

Entering the second to last month of the 2021, and markets look to be relying on decent-to-good earnings to continue climbing higher.

Volume Y-O-Y has gone down a bit, which makes sense as investors are stuck trying to figure out where we go next, where concerns over debt, continued corporate earnings growth, inflation, energy & supply chains & sitting on edge.

The 3x levered S&P 500’s UPRO ETF (above) is at record highs, while their NASDAQ counterpart TQQQ has more volume, but similar price stall-out at just above all-time highs.

While everything is still climbing, the RSI’s & MACD on the two above ETFs show that perhaps there is about to be some risk-off movement, as both RSIs are flirting with overbought territory & the MACD’s are beginning to curve more.

Technology (VCLO), Oil (UCO), Uranium (URA) & Semiconductor (USD) ETFs Are Performing Stronger Than The Pack

Technology, specifically the disruptive names in cloud computing & cyber security are performing well, with the VCLO ETF (below).

This looks like a time for investors to time a decent entry, as prices are slowing down while their RSI readjusts, and volume is above average.

With the current state of the energy markets, it is no surprise that oil is bullish, although it looks like the UCO ETF is showing some signs of slowing down its rapid recent growth.

This looks like a time where investors may get a decent entry point as their RSI is coming back down from overbought levels, and prices are expected to continue climbing.

URA, an ETF that tracks uranium also looks to be cooling off, with its RSI approaching neutral again, with higher than average volume for the year, creating an opportunity for entry.

Their 50 Day Moving-Average should provide support on the price to continue near-term growth.

USD ETF also looks healthy over the last year, especially with their more recent performance since September.

With an near overbought RSI, there may be some pullback that investors can use as an entry-point in the near-term, to catch some of their momentum.

BioTech (LABU), Education (EDUT), China Real Estate (CHIR) & ESports/Digital Entertainment (NERD) Are Lagging The Pack

LABU, an ETF that has 3x leveraged exposure to BioTech has been performing poorly this past year, but looks to potentially be reversing course & be an opportunity in the near-term for some growth.

EDUT, a global education ETF has had a difficult year, however, it may be able to reverse course if it can maintain above $10.88 & break above $11.02, as with an RSI that is signaling being oversold, there should be opportunity to reverse course.

It is no surprise that Chinese Real Estate is in some trouble at the moment, and the CHIR ETF agrees.

I think that there may be more pain to come, as there are still many relevant uncertainties, but for investors looking for exposure in the space, they offer a 6.47% dividend yield while you wait/to provide a cushion should they continue to decline.

The NERD ETF tracks Esports & Digital Entertainment & has also been having a tough go at it this year.

However, if they can stay above $26.28, they may reverse course in the near-term,with the RSI & MACD showing some more slight losses quickly, but their Moving Averages show signs of reversing.

Tying It All Together

Overall, it will be interesting to watch how the next week’s earnings calls come out, especially after Amazon’s & Apple’s this past week.

Broader indexes look ready to cool off a little bit, with high RSI’s on the S&P & NASDAQ leveraged ETFs, which should make for some good entry points for investors & volatility for traders.

Investors may be taking some profits here before the end of the year, which would mean more cash on the sidelines, and a shift into safer value names with more dividend yields.

*** I DO NOT OWN SHARES OR OPTIONS RELATED TO ANY OF THE NAMES MENTIONED ABOVE AS OF WRITING THIS ARTICLE ***

Another week has come & gone, and markets have continued to venture into higher, uncharted territory.

Uncertainty around inflation, supply chain issues & COVID still exist, as well as growing concerns about the state of debt markets internationally.

Yet the markets have managed to shrug most of it off, as they continue to climb higher.

Energy, Russia & Bearish Emerging Market ETFs Are Leading The Pack

Of the recent top performers, the most bullish names at the moment are focused around the energy space, as well as Russia.

ETFs that are focused on bearish sentiment in China & emerging markets are also performing well, as the supply chain & inflation troubles will hit these areas especially hard, leading to potential unrest.

While other traditional industries such as technology, cloud computing & cyber security continue to do well, these names should be interesting to watch for traders in the near-term.

With so much potential volatility based on general market uncertainties of the last few weeks, there should be some profit opportunities in the names above, as well as their peers.

Cannabis, Online & In-Store Retail, Clean Energy & Airline ETFs Are Lagging The Rest Of The Market

Some of the laggards may become buying opportunities in the near-term, whether via individual stocks or ETFs.

Cannabis ETFs are performing poorly at the moment, as shown below by TOKE, which is struggling to gather momentum on low volume, despite a recent bullish MACD crossover.

I don’t know that it’s wise to count these names out just yet though, due to volatility in the space that is produced by laws & regulations, as well as the fact that they are a vice which has steady demand by the users of their products.

Both in-store & international online retailer names are also struggling to make any consistent gains, mostly due to supply chain issues & inflation fears, as consumers are less confident in spending.

These names may perform better in time for the holidays though, with Christmas 2 months & a day away this could be a time to shop for hidden value as an end of the year gift.

Given that we don’t know if there will be another type of lockdown this winter, it makes sense that in-store purchases will likely go down, especially when coupled with the fact that many stores are facing a shortage of goods & supplies.

These names are also floating around on very low average volume currently while downtrending.

Clean Energy is also not performing as well as you may think, given the talks of green power in the news.

This would make sense though, as more & more people are beginning to realize that while it is a noble idea, implementing it at scale will be rather challenging, and will not remove our reliance on “dirty energy” entirely.

PBW above looks set to continue downtrending, with momentum to come from an impending bearish MACD crossover – get your options contracts ready!

Lastly, I don’t think it comes as a surprise to anyone that the airlines are currently a shaky investment.

With uncertainty about COVID-restrictions, fuel prices & holiday travel demand this year, JETS looks to still have more room to fall.

Watch their 10 & 50 Day Moving-Averages this week, as additional downward pressure & momentum may come out when they cross bearishly in a couple of days.

Tying It All Together

It’s no surprise that there is currently a lot of noise impacting markets.

Given the broad nature of what headlines we are seeing in the news each day, it may be best to pick one area to focus on in the near-term & research into the inputs that drive their price.

From there, once you’re comfortable with it, begin to also strengthen your positioning by trading those areas & industries as well, as it will improve profits while also keeping you focused on what will be moving the prices of the names that you are already in.

*** I DO NOT OWN SHARES OR OPTIONS RELATED TO ANY OF THE NAMES MENTIONED ABOVE AS OF WRITING THIS ARTICLE ***

This past year has been an interesting one for watching the performance of stocks & the markets. Between all of the recovery type names, unique ways the TV pundits proposed calculating earnings during the pandemic & market momentum that has been pinned on there being more active participants than usual, there’s been no shortage of entertainment. But something that we haven’t seen much of is people discussing the negative fallout potential that all of this has created.

We all know that stocks take the stairs up, which they’ve been climbing with few faults since March/April 2020, but how far down the elevator ride will be hasn’t really been tested. This may ultimately be more problematic than most folks anticipate the next time around, mainly due to the rapid “recovery” that was made last spring.

A quick dive into the charts of the major indexes shows that the bandaid may be better off being ripped off in the near-term than later.

Breaking Down The Moving Averages Of Major Stock Indexes For 2020 Into 2021

In the last couple of weeks we have seen index levels flirting with their 10 Day Moving-Averages quite a bit, while always managing to break above them slightly & begin to establish new, slightly higher ranges. Something that is particularly troubling about this, is that RSI levels remain on the higher side, while MACD levels are relatively flat.

Treading water is an essential survival skill for maritime activity, but not necessarily the best for your investments & retirement account.

The charts below show how this is bringing major moving averages closer together to levels that may prove to be problematic the next time that even a 10% correction inevitably comes around.

This is the chart for QQQ, tracking the NASDAQ; note the relatively flat MACD levels mentioned before over the last 200 days, minus a few hiccups & the RSI in the last 50 days spending a lot of time cozying up to the 70 level. A 2.23% drop in price level is all that is needed to break below the 10 Day Moving-Average, and the 50 Day Moving-Average is only 4% lower than that.

A 10% correction would push prices below both of these levels in a bearish manner, with the 200 Day Moving-Average 12% below.

Using the SPY chart above, we see that the S&P 500 has even less room for error, with similar RSI & MACD trends as QQQ. SPY’s price level is less than 1% above its 10 Day Moving-Average, with only 3% lower to go to break the 50 Day MA in a bearish manner, and the 200 Day MA 10% below that.

A 10% correction in prices here will leave the 200 Day MA about the same distance below the current price:50 Day MA level.

The Russell 2000 has a bit more breathing room, with the IWM ETF price level being 1.6% above its 10 Day Moving-Average, and the space between the 10:50 Day MAs being an additional ~9%.

Applying a 10% correction would breach the 50 Day MA, but the 200 Day Moving-Average is still another ~19% below that, providing more cushion from a technical perspective.

Then we have the Dow Jones Industrial Average, who seems to have it the worst (although also the smallest sample size by components).

With its price level just .11% above the 10 Day MA, the 50 Day MA is another 2.7% below that & the 200 Day MA is only 9% below that level, making a 10% correction a much larger issue from a technical standpoint.

As you can see, from a technical perspective we are standing on bambi legs, as a healthy move to the downside will have most of these indexes flirting with breaking the longer-term trend.

Much of this is due to the need to place money somewhere for growth, and a lot of speculative bets being made, primarily on technology & medicine, which will also likely make the difference between QQQ & IWM become much closer to the SPY & DJIA levels shown above.

A Correction Sooner Than Later Will Be Beneficial To Rip The Bandaid Off

I added in the 200 day & 50 day yardsticks above, as it highlights that there is an additional problem posed by the rapidness of the market’s recovery. The recovery speed of last spring for the most part outpaces the performance of the more recent time periods, which is somewhat of a life-ring for the longer-term moving averages shown above.

Using the QQQ ETF again, I added in an additional yardstick at the 150 day ago mark. Note that the 200-150 day ago period QQQ grew by almost 22%, while between 150-50 days it increased another 16%, followed by ~15% growth in the last 50 days. That rapid spring recovery is a major reason why the 200 Day Moving-Average has the spread between the 50 Day MA that is currently enjoys.

Looking at the S&P 500 via SPY, we note the same thing; 12.6% growth in the 200-150 day ago period, followed up by 15% growth in the 150-50 day window & only 8.2% growth in the previous 50 days.

The Russell 2000 IWM ETF has fared the best, with 19% growth in the 200-150 day window, followed with increasing growth, with 22.5% gains in the 150-50 day window, and 24.5% growth in the last 50 days. This is why their 200 Day Moving-Average has shown the best amount of cushion for any pricing pullback out of everything shown as examples here.

The Dow Jones Industrial Average has the worst recovery:recent growth story, to be expected based on our last DJIA chart. With 10% growth in the 200-150 day window being followed by a 13.7% increase in the 150-50 day period, and only 5.4% growth in the last 50 days.

Tying It All Together

All-in-all, if we continue to tread water the way we have been compared to last spring’s recovery growth, this will only make the major moving averages get closer together. This will then make any normal correction become potentially much more dangerous, as the downside movements in price will come much closer to breaking the long-term trend, if they don’t blow right through them.

With this in mind, it is becoming more & more essential for traders & investors to have a hedging strategy in place, and be ready to actively trade during the upcoming downward motion, whenever it ends up happening. It appears that the sooner it takes place the better it will be, as otherwise there will be more obstacles to overcome from a technical perspective.

Perhaps its best if the bandaid is ripped off now, before a cast & sling are required later on down the line…

This week we will begin to hear about the impact that Covid has had on Black Friday & Cyber Monday, which will be a great barometer of consumer sentiment for a year that has hurt many financially.

Another item of interest will be to see not only how Covid cases/deaths continue to climb & where, but how drastic the “lockdown” measures taken to combat it will be.

I will also be interested in hearing more about Flu numbers, as we are in full on flu season now, and it isn’t sounding like that bad of a year, which raises suspicion on Covid reporting.

On Tuesday Powell will be testifying, when we also get the ISM Manufacturing PMI number, as well as the ISM Manufacturing New Orders Index, ISM Manufacturing Prices Paid & Employment Index numbers as well.

Wednesday brings the ADP Employment Change report, which will be interesting to see how seasonal jobs that may have been taken in year’s prior for the Christmas season fared due to Covid restrictions.

I’ll also be interested that day in the EIA Crude Oil Stocks Change, as well as the Fed’s Beige Book & Williams’s speech.

Thursday’s Initial Jobless Claims & 4-Week Average numbers will bring more clarity on the current employment situation, as well as shed light into how many jobs are still being lost as more & more companies are forced to reduce workforces due to virus restrictions; the ISM Services PMI will also be reported on Thursday.

Lastly, on Friday we will get to hear the Nonfarm Payrolls report, Trade Balance Numbers & Factory Orders M-o-M, all of which will help shed light into how the economy looks to be heading as we begin winter.

While markets tend to perform well in December, at/near all-time highs, any one bad report that doesn’t meet anticipated expectations may cause some of the jenga pieces to fall, providing a new entry point for market participants.

Lots of folks have been saying that they see it occurring in January 2021, but when markets are running this hot, any hiccups in data are prone to start a correction in prices.

Last week provided nothing short of a wild-ride in terms of the news cycle.

Particularly interesting is that the presidential race in the US was called on a Saturday, and with the amount of information that shows there is likely to be some strength to the lawsuits against the counting process.

This will make for an interesting week ahead, particularly in the stock & currencies markets.

Beyond Meat & a number of popular cannabis names will be reporting earnings this week, along with some energy companies, which will provide interesting market movements.

In the US, the JOLTS Job Opening report comes out Tuesday, which will be worth examining as it will likely begin to show more seasonal employment changes, along with some FED speeches & the Unemployment numbers.

These will give better insights into the current state of the economy in the US, and give some idea as to how far ahead of itself the market has become.

FX markets will also be a good indicator as to what’s to come, along with bonds across the globe.

There will likely be some volatility that traders can take advantage of, and that longer-term investors can use as entry points on their favorite stocks, whether to establish new positions or to build upon existing ones.

All in all, it’s going to be a fun week in the markets, but certainly one to keep a watchful eye on.