Here’s my take on what matters in this market. (January 31, 2022)
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I just want to make a couple of quick comments about the market. For 2-days we have had a pretty significant rally. The Q’s ( NASDAQ: QQQ ) opened up here and so in 2-days they have ramped up 5.5 percent. That’s a pretty big move, that’s all I can really do, just say that’s a big move. I have no idea what is going to happen next but I can tell you where we are right now.
On the weekly chart you will see this, a nice drift higher along the 50-day or the 10-week moving average we finally got, what I would say is a shot across the bow. It is a phrase that I use for the first break in a market that recovers. How much it recovers, if it amounts to anything I don’t know. Right now it is still just a broken market. But if we kind of wind up back into this phase where the market holds up above here then you are going to be tempted to say everything is fine, everything is beautiful in its own way and we are back up here.
But the fact is, we’re really not, not quite, but this is a tradeable rally, it is. It has been, I should say. This is the point that I want to make though, when you see the Nasdaq ( INDEXNASDAQ: NDX ) doing something like this you have to look at the big dogs and see what they are doing. Because most of these indexes, the higher the capitalization of a holding is the more impact it has in the index.
And so I am looking at this, and that’s not necessarily always the case, some of them are just evenly weighted. But in the Nasdaq 100 ( INDEXNASDAQ: NDX ) you have got to look at the highest capitalization stocks because those can be the ones that will move the market the most. And they can give you an outsized indication of what is really happening underneath.
Now today, if you look at this, again, 100 stocks sorted in order of performance today, nice to be in PDD, (we will end it here) we have 88 percent that closed higher on the day. That is a pretty broad-based rally. Now, if we look at these in terms of capitalization what we want to see, let’s say it wasn’t a broad-based rally, then I am looking at this same chart and I am saying, what’s Apple ( NASDAQ: AAPL ) doing? Okay, a nice move, nothing wrong with this, couldn’t buy it here but if I owned it I wouldn’t think about selling it.
Microsoft ( NASDAQ: MSFT ) still has a lot of resistance overhead but this is a clean bounce off the 200-day or 40-week moving average. We look at Google ( NASDAQ: GOOGL ), a breakdown here below the 2, now it’s back to it. Could this be a top? It’s hard to say but I do have a hard time believing that Google ( NASDAQ: GOOGL ) would have a big retracement just because of what they do. I look at this though and I see strength here.
I see strength in Apple ( NASDAQ: AAPL ), Microsoft ( NASDAQ: MSFT ), Google ( NASDAQ: GOOGL ). And then how about Amazon ( NASDAQ: AMZN )? This thing, it’s like the lumberjacks in the Amazon have been chopping at this thing for a while. This is giving us a rebound too but where is the resistance? It is right over here; broken support once broken becomes resistance.
And then finally, Facebook ( NASDAQ: FB ), or almost finally, not a trillion-dollar company but 830 billion, I would like that. I could probably afford to take NetJets every once in a while, like to the grocery store. So this is also a stock that is coming up. It is still in a downtrend right here but you can see, this could have a little ways to go. And finally Tesla ( NASDAQ: TSLA ), lord I hope this runs up to 1100.00 because I have a pretty big call position in this, which I am really happy about. Some days chicken, some days feathers.
Anyway, I am looking at these 6 stocks and I am seeing some real strength in them. I think, just as a trading call, we are probably going to go a little bit higher in the Nasdaq ( INDEXNASDAQ: NDX ). Beyond that, I am over 5-minutes, I can’t talk about it. But I would not be short this market right now. I am not saying that I think this is going to go up to new highs, I kind of doubt it, but that is not a prediction.
However, when things get too pessimistic; think about it this way, and I am serious about this, when you hear market analysts or market commentators talking about the geopolitical thing, in this case, it’s Russia, Ukraine, or whatever it is over there, you hear about that. When you hear commentators talking seriously about how part of the weakness is the geopolitical situation over in Russia and Ukraine, and are we going to go to war? What about NATO and this and that and the other thing?
You know that it is time to buy because I will just ask the question, when is the last time a war has damaged the market more than for a day? Think about it, the first Gulf War, Kuwait? Not. The second Gulf War, Bush, got to go, whatever? No. It didn’t impact the market. The thing in Afghanistan? No. How about when we got out of Afghanistan? Ugly but true, what did that do? Wars literally don’t impact the market. Do you know why? Because money doesn’t care about who is killing who, it just doesn’t. I don’t, with respect to how I put my money. Oh, I am going to short Lockheed Martin ( NYSE: LMT ). Really?
The point is, when you see the news flow start to turn totally bearish to where everything is wrong with the market, the market is going to zero. When do you see those headlines start to pop up? They are always there to a certain extent, that’s the wall of worry, but here’s when you see those stories start to pop up; after the market has declined 10 percent, 15 percent, maybe even 20 percent. If it is 20 percent that is officially a bear market, which means, load the boat. The last time the market went down 20 percent it turned out to be a hell of a buying opportunity.
The same thing with the SPY ( NYSEARCA: SPY ). When did you hear the worst stories of all? The worst of the worst is happening right here. This is horrible, we are going to zero. Sell everything, short everything, make money that way. You make money when the market goes up. You make money when the market goes down. Buy Barron’s, read it because nobody else does.
And so then you get this big massive thing here. But what happens? One or two days or a week hope springs eternal. But if this starts rolling over again, then hope is not going to spring eternal, hope is going to cost you a lot of money. So don’t trade the headlines, who gives a rip about the headlines? Trade what the market is doing. Pay attention to the headlines because if you have a really, really negative headline and the market is going up, what’s that telling you? It is not telling you that the market is not reading the newspaper. It is telling you that the market isn’t worried the way you are worried.
So if there is anything, by the way, that happens in Ukraine, just hope that kid isn’t over there. The thing that the markets are definitely concerned about are interest rate hikes. But is there anybody out there who is not of the expectation that the Fed is going to hike 5 times this year, that’s 125 basis points, rates are up by 1.25 percent? Is there anybody that hasn’t heard that? Would it be a surprise to you if the Fed raised interest rates and then raised them again? OMG, the Fed is raising interest rates. It’s February, we are all going to die. Everybody already knows they know that the Fed is going to raise interest rates.
Now, how much will they raise? I have no idea. My vote doesn’t matter. But I know this, the banking index ( NYSEARCA: XLF ) is holding up. What is really not holding up is tech. Over-sold bounce, fine. MidCaps ( NYSEARCA: MDY ), no thank you. Small Caps ( INDEXSP: SP600 ), no, thank you. Now, why are the MidCaps ( NYSEARCA: MDY ) and Small Caps ( INDEXSP: SP600 ) important? I will tell you why, because they are the ones that need to borrow the most money, that’s why they are Mid ( NYSEARCA: MDY ) and Small Caps ( INDEXSP: SP600 ) stocks.
Small Cap companies, they need money. They need money to get to where they are not a Small Cap company anymore, that is just the deal. So if their money costs them more money they are not going to be able to get some traction. They are not going to be able to grow their business. It’s a spectrum thing, it’s not just yes or no. It’s, well, how much? It’s a gray area, that is why these stocks are falling down so much.
But at some point, you are going to see these stocks start to come back up. You are going to see them start to outperform and that is when you are going to see that the market has actually been in the process of pricing in all the interest rate hikes. They are still in the process of doing it. So all I can tell you is, to focus on the charts. If you focus on the charts you are guaranteed not to get into an argument with the market. That’s an argument that you can’t win. The best theories have been tried by some really smart people, they always lose the argument.
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