Is omicron just another Wall of Worry that the leading tech stocks will overcome on their way to the moon? Note that I emphasize the ‘leading’ big name techs and avoid the rest if the market under them. A while ago I showed the incredible chart of the rapidly rising number of new 52-week lows in the Nasdaq while the index itself was sailing merrily upwards. Here it is again in all its incredible weirdness:
Previously, the index lows were marked by spikes in the 52-week lows, as is normal, but last month, all that changed. The largest spike at least since the Corona Crash occurred as the index was rocketing higher. Also note that at the January 2020 highs, there were very few new 52-week lows as most shares in the index were in bull trends. But as the Index has rallied by an astonishing 140% since the Corona Crash low, more and more shares in the index have entered bear markets!
That is truly jaw-dropping and is a clear sign stock markets are highly fragmented and massively unsafe for long term investors.
While most attention is towards the big names, there are hundreds of shares in the index that rarely feature in the MSM – and are yielding negative 52-week returns for investors. Barely any publicity for these – and that is because the main index remains elevated with bullish sentiment in lockstep.
Of course, this is explained by the market’s growing focus on the few leaders such as Apple that dominate their sector. But this marked split into two camps of Nasdaq winners and losers is the sign of a very unhealthy stock market. In a normal period of economic expansion, most shares grow in value. So what has changed?
But we are not in a normal economic expansion. In my mind, it is the combination of the Fed’s decision in 2008 to engage in QE (aka ‘funny money’) and their reaction to the Covid-19 pandemic that has moved the needle. Interest rates have been forced to the basement to uneconomic levels where normal price discovery through supply/demand balances have been overturned.
For many investors, the FAANMS are the only shares to hold.
With the index once again testing new ATHs here is my take on the state of play
The decline off the 22 November ATH (my wave 3) looks best as a three down (as I suggested at the time to VIP Traders Club members). The rally off that 3 December low has been hugely vigorous and it very likely ‘impulsive’ and if so, it implies a clear five waves up possibly to a new ATH.
The most recent dip appears to be a classic fourth wave leading to a new fifth wave high. After that, it has options, It could terminate just below the current 16,770 ATH or it could go on to a new ATH. It is almost a gimme that traders will try to push the index above the critical 16,450 resistance where boatloads of buy stops must be located (latest 16,300).
If so, then a move to test the ATH is well on the cards. But whatever path it takes, we are very close to a multi-decade reversal and I want to be on board early on in this historic move.
IMPORTANT DATE On Wednesday the 15th the Fed will make its last monthly statements and all Wall Street eyes will be on what they say about the pace of their bond tapering. It will be significant because as the dominant player the Fed controls the Treasury market (and some would say the equity market as well).
Then on Thursday, the BoE and the ECB give their two penn’orth so next week promises to be highly noteworthy in many markets and especially the dollar.
And rearing its ugly head is the vision of more restrictions on our movement because of the perceived danger to the NHS from omicron. There seems to be little danger to our health as this variant has produced few hospitalisations and no deaths (?) so far and so additional restrictions will be widely ignored into the Christmas party season and our glorious ‘leaders’ will be vilified even more as they slip even further down the respect tables towards the basement.
This upcoming public rebellion as we approach Christmas is on the cards as many are viewing omicron as just like the common cold – a relatively harmless virus with minor symptoms that will always be with us. And will the public stand a second Christmas in lockdown?
Conspiracy theorists (and others) are viewing the knee-jerk lockdown ploy as one more step into total socialist state-ism that started eighty years ago after WW2. It is well known that when a new and small government-created organisation starts out (with the best of intentions), the public is well served. But when it grows to behemoth size, it is there primarily to serve its employees and the public become ill-served (and taxed to the skies). The NHS is a prime example.
Bitcoin makes a textbook move – and a low risk trade
Bitcoin is one of my trio of markets that I use to give me a glimpse of the state of investor sentiment for speculation. It has a huge participation and thus I expect it to display ‘clean’ chart patterns including Elliott waves, tramlines and Fibonacci retraces.
Also, in traditional chart analysis (not much studied these days) – as taught in the famous Edwards and McGee textbook – gaps are a significant feature when they occur. They often point to the next market move with high accuracy – as here.
Last weekend we had a doozy of a gap in Bitcoin – and that is highly unusual since the market is almost a 24/7 affair – except for a few minutes a day for platform maintenance. Last Saturday, the opening trade was several thousand dollars down – a highly unusual event.
And on Monday I suggested that if the gap could be closed promptly, the market would reverse and decline again after placing a traditional ‘kiss’ to close the gap. This is what happened last week:
It bounced up on Monday to fill the gap and plant a kiss on my solid trendline and is now peeling away. With the knowledge that the gap was likely to be closed, that offered a Bitcoin trader to enter a sell short order and watch while the market quickly reversed lower. That was one of the safest trades for a very long time! And these don’t come along every day!
The gap and its closure has shaken the market. That’s what huge gaps do. But the dip buyers came in last week but are there enough disappointed longs to force the price lower? All buyers since September are sitting on major losses and must be wondering what to do. Hmm.
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Will Ford take over the EV mantle from Tesla?
While virtually all eyes are on Tesla on the EV stage, very few in the MSM are focussed on the venerable Ford Motor Co. And that is one reason why the shares are quietly moving higher. Of course, Ford had a terrible Corona Crash (unlike Tesla) and the shares fell from $67 in 2009 to the $4 area last March for a horrendous 94% loss.
Of course, the Financial Crash in 2008 was an even worse hit to the shares as they hit a low around $1.
And since last March , the shares have been edging up to the current $21 which is a new high since the Crash. but what a buy at $4 three years ago! Here is the chart
And with Tesla off by over 20%, I am asking if the legacy auto makers are about to scoop the big EV prize – affordable, reliable, high range and attractive models for the mass market.
As I asked many months ago when Tesla was garnering all the headlines – and the sales – will the big auto boys stand back and let Tesla rule the EV roots? Unlikely.