Yesterday we had another nasty day of selling in the markets after my first sell signal that hit on the hourly chart on Tuesday. I explained how this indicator works in my latest Youtube video. The Nasdaq closed yesterday below its 13000 support level. If it doesn’t turn around to close above that level by today’s close then we’ll have a second sell signal hit as it will represent a lower low and a break of support to mark a new downtrend in the markets.
Now whenever the market makes a key bottom or a key top there are critical money shifts that occur that cause some sectors of the market to become laggards to the downside and others to show signs that they will become future market leaders.
Two stocks now typify what is happening in the markets. One is Exxon, which I am long.
While the stock market has rolled over in the past week, shares of XOM have creeped up higher. This leading energy stock is acting strong as the entire energy sector has so far stood firm in the market selling.
At the same time one stock that was red hot last year that is now in a serious breakdown is Zoom, which I am short.
ZM is in the Nasdaq 100 and it many big cap tech stocks like it that are now leading to the downside. Money is coming out of these stocks and some of that money has been flowing into energy stocks.
I think this is going to be a story for the years to come. We may still see energy stocks pullback a bit if the overall market does continue lower in the coming weeks, but look for them to outperform big cap tech in the years to come. They will be among the top things to buy once the correction ends.
Other commodity related and inflation friendly sectors are doing the same thing.
Now, in hindsight, one thing that is clear is that market had a manic run going into this month as people piled on RECORD margin debt. Bitcoin went crazy, we saw silly moves in stocks like GME and AMC, but there was a final parabolic move that also came to an end in many of the popular big cap tech stocks. One fund that has specialized in them, with Tesla as one of its biggest holdings along with ZM, is ARRK.
Obviously, this fund went up a lot since March of last year, but it had a bit of a pause from August until after the November election. Then it broke through 100 for a 60% rally in ten weeks.
That’s a manic move and moves like that become unsustainable lead to tops. That’s a story for these big cap tech stocks and explains why they are now falling hard. Couple that with trouble in the Treasury bond market, an S&P 500 that just hit its second highest valuation level in terms of fundamentals in its entire history, and the market is in a toxic volatile situation right now. It’s best to be cautious for now and be ready to buy when everyone is in panic later when this ends.
Again, ZM and XOM are two stocks that demonstrate how money is moving in the market now. For more on my philosophies on investing in these markets grab my book Strategic Stock Trading.
If you have any thoughts you’d like to share or questions scroll down to the bottom of this post to the comments section.
-Mike
