Yesterday, the market opened up, following Wednesday’s Federal Reserve gift day to the bulls that led to a big rally. On Wednesday Jerome Powell once again made a prediction that inflation will go away in twelve months, so bulls got excited and launched this year’s Christmas rally. When the market opened up Thursday the S&P 500 went up for about two hours and then turned down to finish the day down 45 points. Before it started its slide, though big, selling hit the stocks inside the ARKK ETF and the Nasdaq 100, including the key leadership stocks inside of it that have helped to push the averages up by themselves.
The decline in the internals and the fad stocks has been a warning sign for weeks that the averages were on borrowed time. I was hoping the Christmas rally could last into Christmas, but now it looks like it only lasted a few hours. The problem is that when most stocks fade once the big few winners peak then just about everything goes down. And so now it looks like the Nasdaq has been shot. The S&P 500 will hold up better for a bit next and the DOW will seem to do the best for even loner, but in time all three will take a hit too. In the end it looks like the rally that began at the start of December when the VIX went above 30 ended yesterday.
But money is moving into other things.
Take a look at these three charts as they can sum up what is happening in the markets.
While weakness hit most stocks in November, AAPL made a new high in December and took its RSI to an extreme overbought level. AAPL fell almost 4% yesterday in what looks like a key top. Is this a top that will lead to a big drop or just a pause for awhile? For the Nasdaq 100 it doesn’t matter when most of the stocks in it have been falling and it really has only been AAPL and a half dozen other stocks that have helped it go up.
And that brings us to Robinhood, which made a new low again.
Revenue for the Robinhood trading app is generated by millions of traders buying stocks and crypto coins. The more money they make the more trades they do and the more the Robinhood stock can go up. The stock is going down though really bad, which suggests that investors selling it believe the future of the Robinhood trader is taking a bad turn in 2022.
This is not a prediction on the stock – this is a statement of what the stock is actually doing.
I leave predictions to people like Jerome Powell and Cathie Wood.
One thing about Robinhood traders, the app has trained them to think like a herd and buy stocks that go up the most on the top 100 list inside the app. The problem is that when things go down they can sell like a herd too.
I have not been sure what gold was going to do after the Fed meeting so have not had much to say about it recently. However, as the stock market dumped yesterday gold came alive and big cap mining stock NEM took off with the price of gold. Silver got a bid too and so did a lot of metals and commodity related stocks.
Although I expect the Nasdaq and S&P 500 to decline in the first quarter of 2022, being led down by the fad stocks, there will be some things that hold up and breakaway from the market to just run to the upside on their money in a big money shift. NEM is one such potential stock, as it was a pocket of strength in the markets Thursday. I own a position in it and we’ll have to see if it can do it more than just one day.
-Mike
