US equity markets reversed course and closed down -5% for the week on average. Risk gauges followed suit and closed in risk off mode. The selloff was largely a reaction to the Feds plans regarding rates heading into in 2022. They were very dovish because the economy will remain weak, The news of low rates for the foreseeable future spooked Mr. Market. Now that is a big change, (low rates =horrific price action) and if it persists is not bullish for stocks. Seems we need some really bad news to get things back in gear. It could also mean we have hit a wall despite the flood of helicopter money from both Capitol Hill and the Fed.
Meanwhile the S&P 500 is trying hold above its 200-day moving average while the Dow Jones ETF (NYSE:DIA) and Grandpa Russell 2000 ETF (NYSE:IWM) closed under theirs. All four indexes left a nasty gap down and an Island Top. The Russell 2000 index currently only has 27% of its holdings above the 200 DMA while the S&P 500 went from above 60% to only 36% in just a few days. Gold ETF (NYSE:GLD) and Gold miners ETF (NYSE:GDX) were green for the week. Considering the Fed is looking to leave rates at such low levels it is no surprise that the yellow relic rallied with more to come.
This Past Week’s Highlights:
Risk Gauges reversed and in Risk off mode
- The Nasdaq 100 made new all-time highs and now has a potential bearish island top
- IWM broke down hard and gave up hard fought gains and budding leadership
- Volatility ($VIX) stabilized above its 200 DMA and then roared, closing up a mere +32% for the week
- Short-Term Sentiment went from running rich to oversold in just four days.
- Value Stocks (NYSE:VTV) gave up all its recent out performance over growth (NYSE:VUG)
- Gold looks poised to break out of a multi month compression zone
- Emerging Markets that benefit from rising commodities are firming
So, the big question is will the short-term oversold conditions be enough to cause the market to bounce to new highs and make all the new Robin Hood players look smarter than Warren Buffet? Considering the current state of things…. who knows? Applying logic these days can be dangerous to both your financial and personal health. We are sticking to our quant models and tightening our risk for discretionary trades.