There has been shaky action this week in several pockets inside the stock market and certainly in the crypto market as Bitcoin dumped 20% off of a recent high after having gone through a parabolic run. It appears that the 55,000 – 60,000 level is going to become massive resistance with a major top being put in. It’s a big warning that frothy markets can take a hit at any moment and we have seen past big winning stocks fade a bit. Take a look at the chart of Facebook for instance.
Since making a peak around Labor Day, Facebook has been lagging the rest of the stock market while things such as commodities and energy have ripped. In fact this chart has the makings of a stage three topping phase and the thing is there are many big cap tech stocks that were big winners from March to Labor day that have charts just like this too. Amazon is one of them.
If these stocks end up cracking later they are likely to become leaders on the downside when the stock market does have a correction. However, things look a little better this morning for the short-term when it comes to the US stock market averages, because the long-term Treasury bond market put on a bounce Wednesday for a potential bottom reversal candlestick pattern. Take a look at the TLT ETF to see what I mean.
Notice that the RSI for TLT has been below 30 for several days now to give an extreme oversold reading. TLT is deep in a bear market now as it is trading below its 150 and 200-day moving averages, which are themselves trending down. However, in bear markets you do get oversold bounces and TLT looks like it is set up with one now. Yesterday it had a big gap down and then rallied throughout the day.
I wouldn’t look for big upside here for TLT or other bond ETF’s as we saw a secular low in bond yields put in last year, but it does look like it is likely to at least stay above yesterday’s gap down low for several weeks to work off these technical oversold conditions. That would help the stock market stay bullish for now by taking one of it biggest worries out of the picture for the moment.
That doesn’t mean I’m expecting big gains in the markets, but we are likely to see the DOW and S&P 500 remain above their 50-day moving averages for the next few weeks, if not months, while some weaker sectors continue to fade.
Of course as things are unfolding now more and more it seems the real money is to be made in the commodity market. Just look at the CRB commodity index to see how much they have been going up. Jerome Powell basically said this week that he wants to see inflation get to 2% and even above 2% for awhile in a completely dovish presentation to Congress.
One stock I own that is going up as a result of all of this is Mosiac.
MOS went up 8% yesterday and I prefer to buy on dips or pullbacks so I can’t tell you that there is an entry point in it here. However, my top small cap stock pick for this month does still have one. It’s involved all over the commodity space with properties involving gold, silver, lithium, and a new uranium deal that it just signed. The stock just started to trade on the US OTC.
I did a video Tuesday for my series of educational Stock Trading 101 videos. In this one I attempt to explain how the stock market really works to someone new to it. There are three simple patterns at play in any market and in this video I show you what they are and why they exist. Everything else you do in trading and even investing must derive from knowing this in order to work – strategies people use in the market must build off this in order to function or else one is just throwing money at things randomly.
To grab my book Strategic Stock Trading click here.
I started something new last week and that is I am opening up my daily morning posts at the bottom for comments. My goal is to make this a water cooler type spot where we can talk about the markets together and share ideas. Check it out. If you got any questions or comments just scroll on down to the bottom of this post. It’s fun. If you are reading this on a mobile phone it might just be a little box that says leave a comment that you need to click to read the comments (I’m trying a wordpress plugin today that loads the pages faster on mobile phones as more and more people are using phones and apps to do everything).
-Mike
