Glass Half Empty: The best investors I have known, always are more worried about the potential downside. They manage risk appropriately, and let the gains take care of themselves. I would not say they are a melancholy bunch, but a chat with one of them over the weekend, and they may have come away a bit unimpressed with Fridays rally. Give credit to the Nasdaq Friday, CLOSED near highs for the session, with a wide 500 handle plus range. But looking at a more "gloomy" glass half empty view, the tech heavy benchmark still has some work to do. At its lowest intraday level Friday the Nasdaq was 1000 points below its 50 day SMA, and we like to see names/indexes keep in close proximity to the important line. On the chart below we can see there will be some friction Monday as bulls and bears square off at the very round 13000, number, the scene of a head and shoulders breakdown. Will it end up being a bear trap, or over the neat term with the breakdown achieve its measured move to the 12000 figure?
Tops Form Briskly: I am not making an outlandish prediction here, but the old saying that bottoms take time and tops form in unsettled fashion, is often accurate. Case in point with the chart of XRT below. Now PRICE action supersedes all else and one has to be very impressed with the vault of 25% between the 4 sessions of 1/25-28. Round number theory did come into play here with a strong rejection at the very round par number on 1/28, CLOSING 18% off intraday highs. There is probably some decent opportunity here, to the long side, with the ETF as it retested the bull flag breakout at 75 almost precisely Tuesday, and it is now 23% off most recent 52 week highs. Looking at the top holdings in the XRT, GME as of today was near the 20% threshold, and is the reason the ETF PRICE action has been skewed. So if one believes that that fiasco is in the rear view window, instead of through the windshield, there should be some good opportunities within. Top ten holding BOOT looks good, if it can get its foot in the door above the round 60 number, pun intended.
Semis Sizzling: At first glance the 45% gain for the SMH in 2020, may look "pedestrian" (in line with software via the IGV YTD), but it has added 127.5% from the March lows. During the March depths, the ETF never CLOSED below the very round par number, even though the 3/17-18 sessions were each below 100 by at least 3% intraday. Most impressive recently may have been the UNCH finish for the week ending 11/13, after the prior week added nearly 13% (the week ending 11/13 was also accompanied by larger than average WEEKLY volume, meaning bears tried hard to push the space lower but were largely unsuccessful). The consolidation the in arena was active with three major purchases by AMD, ADI and MRVL. And each of those three is well higher from the announcement of the news. Look for this to carry into 2021. Stocks do a ton of due diligence before buying another name in the group, and to me thats about as bullish as you can get, when peers see big value in rivals.
Speed Bump? I am well aware that the Tesla cult, thinks the company is much more deserving of being put in the automobile group, but it is what it is. That puts it in the consumer discretionary space too, and the automobiles to be honest have become a bit sexy again, with the exception of NKLA. GM is firing on all cylinders, F is approaching the very round 10 number, TTM has acted well POST breakout from a cup with handle pivot of 10.49 taken out on 11/19. In Japan TM and HMC are holding their own, and RACE and FCAU in Europe are on the ascent. But TSLA is without question the big daddy of them all, and the question is, will the very round 600 number be a temporary roadblock? Or will it be a nemesis in the short term? There has been a lot of anticipation of its inclusion into the S&P 500 later this month, which has undoubtedly assisted its rise. Will the last 2 WEEKLY gains of 20%, need a responsible pause, or is the stock idling before yet another powerful jump? A couple consecutive CLOSES above 600 would give the bulls all the ammunition it needs.
All Time Highs In Focus: "When the facts change I change my mind, what do you do sir?" The famous quote by Winston Churchill could be relevant to recent action regarding the Nasdaq. The tech benchmark has been a laggard for 2 months, but after a brutal week last week slumping 5.5%, this week has easily erased that move and more higher by 9%. Very impressive has been another quick recoup of the 50 day SMA Wednesday, spending just 5 sessions below the line compared to the bout of 7 days last month between 9/17-25. If the index can catapult above the very round 12000 number, which has some PRICE memory their being rejected in both September and October, that in my opinion could ignite a big wave of buying. Remember the more times a line of support or resistance is touched the weaker it becomes. The mega cap names are doing a big amount of the jump higher, with GOOGL FB MSFT and AMZN each up in the 9-12% range this week so far.