Major market indexes came apart this past week as interest rates pushed higher. The 10-Year Treasury Yield ($TNX) ended the week aback below the 1.5% level in what has been a sharp rally over the past couple of weeks which has in turn correlated to the sell-off in stocks.
The NASDAQ Composite Index has corrected 7% from peak to trough as of Friday's close, and is currently attempting to pull off a U&R move through its mid-August low. That may result in a logical oversold reaction rally back up towards the 10-day, 20-day or 50-day moving averages depending on how far it is able to carry. The outside chance also exists that the indexes simply continue to melt-up back to all-time highs as they have done throughout 2021. That is currently unclear, but we believe that the current action, including some sharp breakdowns big-stock leaders, vindicates our view that this has not been a market for trend-following stock investors. That in turn has been the primary reason why we have not posted any stocks to our Focus List in some months. There continues to be many cross-currents and even potential Black Swans that may continue to keep this market in a volatile state, so we remain cautious and advise members to adhere to their selling guides, assuming the action over the prior week has not already forced them out of existing positions.
In conjunction with the U&R in the NASDAQ Composite we also saw many beaten-down big-stock leaders posting similar U&R moves on Friday. For example, the charts of Apple (AAPL) and Alphabet (GOOG) below show U&Rs through prior lows in their patterns as illustrated with dotted lines. These become actionable long entry signals once the stock rallies back up through the prior low which then becomes your selling guide. Both AAPL and GOOG can be bought on this basis, but it is not clear how far the current market rally, and therefore the rallies in these stocks, will carry. However, since risk can generally be limited to 2 to 3% of downside these can be tested with the idea of quickly exiting if the rallies fail.
Crypto-currencies rallied sharply on Friday after fed chairman Jerome Powell stated that the Fed has no plans to ban them. That sent Bitcoin back up towards the $48,000 price level, sending the Grayscale Bitcoin Trust (GBTC) gapping above its 50-day moving average. Volume was only 40% above average so not sufficient to call it a buyable gap-up (BGU) long entry signal. Since the move occurred on news it may be short-lived and we would not necessarily be inclined to chase the GBTC here although the 50-day moving average could be used as a selling guide if one wished to take a position here.
While U&R moves in the NASDAQ Composite and beaten-down leading stocks on Friday may lead to short-term reaction rallies that are playable by nimble swing-traders, we continue to see nothing of value with respect to opportunities of a more intermediate- to longer-term nature in stocks. For now, the market remains in a correction until further evidence to the contrary is forthcoming.