When assessing the ‘market’s mood’ I find it important to always start with the 10,000ft view and then look closer and zoom in on what’s operating under the hood.
The 10,000ft view is that of the major indexes on the monthly timeframes. When we look at each of those charts (links are below) aside from the NASDAQ, they are all in uptrends! And that is despite the recent wild action we’ve seen the past few weeks. From the monthly timeframe, its still barely a blip on the radar!
When we zoom down a little bit and look closer at the weekly timeframes, depending upon your frame of reference, you may call them down trends (the last 2-3 weeks have made a series of lower highs and lower lows). I take a slightly different approach. I also look for supportive price action as well as the way momentum flowing in the most recent week. With that approach, I’m viewing all but the NASDAQ as being in sideways trends (see weekly charts linked below). Aside from the NADSAQ, each index caught support at the 10wk line and closed near their highs. This has more of a consolidation feel that a downtrend.
Zoom down even further and look at the daily time frames. The S&P 500 and NASDAQ are in clearer downtrends while the Russell 2000, NYSE, and Dow are getting support. Even the S&P 500 and NASDAQ raliied on Friday on showed supportive action. Overall, the daily timeframes are trending sideways.
During the deep dive we took a closer look at all the distribution that’s piled up. 7 of the last 10 days have counted as distribution days. That’s a lot by anyone’s count. We saw that the last time the count has been this high was last March when the market fell off a cliff! This time, however, things are different! This time, price has been getting support and has numerous layers of potential support nearby. In fact, the NASDAQ rallied off of monthly support on Friday!
Should the NASDAQ take out Friday’s low, the next level of major support is the 200sma.
The next thing I like to consider is the number of stocks making new highs vs new lows. The market can’t hit new highs if the stocks within them stop making new highs. Same thing to the downside. The NASDAQ saw a slight uptick in the number of stocks making new lows on Thursday and Friday. It’s worth keeping an eye on. So far, the NYSE still is in the low single digits for new lows. When the market rolles over, widespread selling is rampant. That’s not the case so far. So far its been more of a rotation. Covid vs post-covid is the major theme I’m seeing.
While there are few setups heading into the week and nothing really actionable yet (that could change in a matter of days so keep your eyes peeled), the post-covid themes and sectors are Airlines, Travel, Leisure, Oil & Gas, and Banks. Banks have been on fire as of late. The story I see the market telling us is that people are getting ready to travel and spend more. Lock downs are easing as are rules and restrictions. Travel requires oil & gas. And people are moving in droves out of large cities and into places like Texas, South Carolina, and Colorado. On top of that, with more stimulus on the way, there’s a lot in it for small business loans. Banks process those loans and I feel that’s part of why we’re seeing this rotation into banks the last few months.
The sectors that lead the way during the Covid era were medical, internet, software, anything that enabled people to work remotely, and solar. All of those sectors have been getting sold off hard for a while now. It’ll take some time for them to form constructive patterns.
Heading into the week, I’m sitting with the open trades that I have (both FFWM and OPY are in the banks and finance sectors) and am waiting to see what happens from here.
Checkout the charts of the indexes below for a closer look at the action.
MONTHLY CHARTS (indexes) Overcall Direction = Up: https://www.tradingview.com/x/XvLTdV6w/?aff_id=15325&offer_id=10
WEEKLY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/Imj4J8mY/?aff_id=15325&offer_id=10
DAILY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/lcFodRhw/?aff_id=15325&offer_id=10
(on the lower right is the image of stocks hitting new highs vs new lows on the NASDAQ & NYSE)
Deep Dive Video