January 9, 2022

Stocks followed through to the down side late last week after the Fed's Wednesday indication that it would consider speeding up the launch of its rate-hike program.

The Nasdaq stands at a level of clear support that it visited two-and-a-half weeks ago.

The S&P, meanwhile, is at its own area of support, the 50-day line.

Comparing the Nasdaq and the S&P shows how glaring the weakness is in the former compared with the latter. Nine sessions ago, the S&P hit a record high, unconfirmed by the Nasdaq. This is a new divergence and is typical in a mature bull market.

Critically, all seven of the largest stocks by market cap -- what we call the Big Seven, Alphabet (GOOG), Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Tesla (TSLA), Metaverse Platforms (FB), and Nvidia (NVDA) -- are below their 20-period exponential moving averages. For the Nasdaq to muster a rally, it would appear that a recovery in these issues is a prerequisite.

Beneath the surface of the averages, last week saw more liquidation of former leaders in the technology segment.

At the same time, bank stocks showed the best tone as they complete or nearly complete bases. This was due to five days in a row of higher yields on the 10-year Treasury note. Higher yields normally steepen the yield curve (the difference between long and short rates) which makes it more profitable for banks to lend money. This is not a group for us to pursue given the limited return potential of most of them.

The other group that shows a good tape is oil & gas shares. For the time being, we are not interested in them as they generally do not offer enough return potential, not to mention their added risk via the volatile crude oil market.

On the short side, most all of technology is extended to the down side and is unattractive.

At some point, it is likely we will get an entry in the ProShares Ultra Pro Short QQQ ETF (SQQQ). When that might occur is unknown.

In summation, this remains a good time to be in cash to protect precious capital.

Kevin Marder

Trading Lessons
Introduction to the service video (38:00)
Money management and risk management video (20:27)
Bread and butter pullback video (11:10)
Bread and butter pullback: Pt II video (15:09)
Bread and butter pullback: Pt III video (31:48)
Bread and butter pullback: Pt IV video (30:16)
System R
Short-selling video (25:53)
Wyckoff spring setup (2:30) (new)