Last week, the bull market seemed to have successfully weathered several tests of its highs where it was almost considered invulnerable, states John Person.
According to the quote from last week’s newsletter from George Soros, it is now ripe for a bust. I do not think the word “bust” is the right choice of wording for this market environment, and it may be a bit harsh of an expression as I am simply expecting the S&P 500 (SPY) to pull back. The performance of the market looked worse than what actually transpired, except for the performance in the NASDAQ 100. In fact, the Russell 2K, the small-cap growth sector ETF gained nearly 3% last week. This signals a rotation is underway. The money moved out of large-cap tech and into biotech, with the SPDR Series Trust (XBI) gaining 11% on the week, materials sector ETF (XLB) gaining 1%, and energy sector (XOP) gaining 6.52%. Industrials (XLI) gained 1.51%.
The weird one was the gains in the steel sector ETF (SLX); it gained 4.90% on the week. There is no doubt the S&P 500 and Nasdaq 100 are starting to show some signs of weakness, however with the Volatility index (VIX) declining on the week by 3.87%, it's hard to imagine a dramatic decline, if any, other than a rotational correction. If there is a next wave lower coming then we need to watch for an uptick in the volatility and higher readings in the ten day ATR, as well as signs of prices weakening with weekly close below monthly pivot levels. Then, if and when we see that occur, this market has more downside in the days and weeks ahead.
Here are the year–to-date (YTD) and week-to-date (WTD) performance.
S&P 500 (SPY) up 4.48% / weekly: - .36%
NASDAQ 100 (QQQ): up 26.09% / weekly - 1.26%.
Dow Jones Industrial Average (DIA): down 1.20% / weekly: +.24%
Russell 2000 Small Cap Sector (IWM): down – 6.69% / weekly: +2.92%
This week: we have an interesting political environmnet, (toxic) would be an appropriate way to desrcibe the situtation; we lost Supreme Court Justice Ruth BaderGinsburg in her fight against caner. This situation is already bringing on heated debates on whether one should be appointed now or to wait until after the Presidential election. The question is how badly will this new development steer attention away from fiscal stimulus negotioations? After last week's FOMC meeting where Fed chief Jerome Powell was strongly suggesting and stated we needed more fiscal stimulus.
According to my scans, we have too many large-cap stocks in both weekly PPS and LCD sell signal price patterns (AMZN, C, CMG, DIS, FB, QCOM, GOOGL, MSFT, PYPL, PEP, WYNN). There are very few new buy signals. This could be a situation where we could see more downside in the averages as they are maipulated by these large-cap names, but we can see stocks in other sectors do well like biotech, energy, industrials, consumer staples, possibly some finacial stocks like CME group and asset management.
There are plenty of names that are already in buy signal mode or have not yet triggered a buy signal. Names like: Zoom (ZM), Twitter (TWTR), and even Peloton (PTON) are all in buy modes and had strong closes on Friday, this shows not all stocks are bad in this environment. We just need to be carefull what we buy in this time frame as we head into the elections.
Two names in the biotech/pharma group that generfated strong buy signals were Eli Lilly (LLY) and Acadia Pharmceuticals (ACAD). Both names populated on my scans Thursday night as we covered in our professional traders live trade room Friday before the market opened. I will be looking to both add in the case of Acadia Pharmceuticals and enter a long position on any dip in Eli Lilly this coming week.
As a follow-up from last week's comments, I suggested to buy a 10 wide bear put spread on a rally in the SPY. That trade is up a bit of money, I suggest to take half off and as always get out of the balance at either breakeven or on a double. Have a great trading week.
To learn more about John Person, please visit PersonsPlanet.com.
