We have seen some crazy swings in the stock market over the past few weeks. The market is gapping down again this morning, but hopefully the lows will hold so we can get a bounce for people. Everyone keeps predicting a big end of the year rally, but on Tuesday the S&P 500 fell over 3%. And what is crazy is that it has had almost ten moves up and down in just the past 90 days and not once last year did it go down more than 1.5% in a single day.
And last week we saw the DOW have a huge rally one day and a big gap up Monday only to dump on Tuesday to make the swings of hope lead to brutal disappointments.
That Monday rally brought the daily stochastics into an overbought situation by the close that day on many individual stocks to give overbought signals on them. I was hoping we’d see more gains to give people a chance to get out of bad positions at higher levels, but it did not happen. Stock market seasonal trends for December rallies are not playing out.
Let me show you one single chart though to show you why a big rally up to the highs for the stock market was not going to happen and is not going to happen anytime soon (there is good news in it too for people feeling trapped in the stock market today).
This is a chart of AAPL the most popular stock for people to own as it explains what is now going to happen with the stock market next.
Apple collapsed in November and became so oversold coming into last week that it was due for a bounce.
And so it bounced, but it is still so far off its highs that it’s not going to go up to them anytime soon, which means that AAPL is now in a sustainable uptrend.
This is the story for just about all of the fad tech stocks that so many hold in their accounts in the dream that they will go up again like they did in 2017.
Instead in the past two months dumped down over 15% and in some cases over 20% and were due to bounce – but bounces do not create rallies to new highs. Instead, all bounces eventually stall out!
Such bounces either are preludes to another big decline to start a few weeks later or the start of consolidation periods that can last for months that eventually lead to a real rally.
So Apple is not in a position to start a rally to new highs now. It’s become a dead money stock now eating people’s accounts up. And NVDA is worse!
But the good news is it’s also not likely to just make new lows and crash tomorrow.
Instead it’s in a position to drift around those recent lows to set the stage for a real move next year. I believe it will be a down move even though most people disagree.
Maybe you do too.
That’s ok – the point is that Apple is not in a position to have a big rally to new highs now and that’s the story with all the other popular fad tech stocks like NVDA, GOOG, FB, and so forth.
And that’s why the stock market move that started last week ended up going nowhere.
However, these stocks are not likely to crash this week. Even though the stock market is gapping down today I do think the real declines are coming next year and not now.
We should see 2600 hold on the S&P 500 on this drop today and if it doesn’t a quick bounce back up after going through it judging by the charts of stocks like AAPL.
So the seemingly crazy swings make sense when you accept the fact that the charts for stocks like Apple are now broken, but not in a position to crash today. Just dump a day again maybe, but not crash.
This means that buying stocks like this requires pure day trading tactics to make money.
I’m not into that type of thing and most people really aren’t fast enough to compete with the computer trading robots.
Luckily there will be sectors that emerge out of these market swings to become huge stock market leaders next year.
Notice gold and mining stocks have gone up this week and gold has tested its $1,240/$1,250 resistance zone and some of the mining stocks are lining up for my Two Fold Formula pattern.
Chasing past fads on bounces without any plan or strategy is not the way to make money. Betting against junk stocks has been so far while new things are lining up to go up for real.
Gold has been going up while the stock market has been falling to cause the GOLD/SPX relative strength ratio to trend up.