Good morning, everyone.
There were very big swings in the market this week. At one point on Wednesday night, futures were reading like this:
Gold +3%, Palladium +8%, Crude Oil +9%
Nasdaq: -3%, Bitcoin: -8%
But at the end of regular trading hours on Thursday, those moves completely reversed course and then some. In fact, QQQ and BTC were both up a few percent since the previous day’s close while GLD and PALL finished down.
Despite all the intra-week volatility, QQQ, PALL, and USO finished the week up just 1-2%. Weekly and monthly charts reduce a lot of the daily noise and help us maintain perspective. Let’s review where things stand.
The biggest ETF movers this week were:
URA +9%, BUG +7%, TAN +6%, XME +5%
RSX -32%, EPOL -9%, POTX -5%, KWEB -4%
And here’s where our ETF leadership board stands:
Even with the intra-week swings, not much has changed on my view of the market other than I’m seeing some bullish confirmation for cybersecurity stocks and I’ve also added back real estate to my portfolio. I’ll discuss both in this post.
Together with precious metals, here is the leadership board showing just the areas that interest me the most currently:
We’ll now look at specific sectors in more detail.
Within this sector, I’ve been focusing on cybersecurity as it has been leading for months. Now, the top 3 tech leaders are all cybersecurity names: CHKP, PANW, and FTNT:
Three weeks ago, I initiated a starter position in FTNT (after it made a false breakdown) and PANW (when it hit support). I will take on a full position on PANW after breakout above 570.
The next sub-group that interests me is stuff like GOOGL. I’m waiting patiently for names like these to base and setup before going long. And that can take a while, so I’m in no rush to open new trades.
Some of the most severely beaten-up growth stocks had a strong bounce this week after hitting their pre-covid highs and other important support levels. For example, here is SQ Weekly which hit multi-year support earlier this week before jumping over 40%:
I am not interested in catching bottoms in strong downtrends. As amazing as that SQ chart looks:
I could’ve drawn similar support levels constantly over the past 3 months
There are still many names that are in no-mans land, for example ZS Weekly
Timing counter-trend moves requires skill and the moves are often short-lived
The math of downtrends: If you bought something in a 70% drawdown that later became an 80% drawdown, you lost 33%. Good luck to those touching MJ:
Financials & industrial commodities
One of the big tells for me that stocks have made a lasting bottom is if/when BLK Weekly reclaims this broken support level. Remember, this is the stock with the highest correlation with the S&P 500.
For commodities, it was a mixed bag this week. While materials had a strong week, oil was roughly flat, and agriculture got hit. I still see some warning signs that I’ve been discussing for the past 2 months:
Bearish divergences (eg. CAD vs. Crude Oil)
Major resistance on monthly charts (eg. XEG, FCX, TOU, etc)
Breakdowns on weekly charts (eg. COPX:GDX)
The next couple weeks will be important.
Crypto charts also continue to be a mess. XMR Weekly has been showing it clearly.
A chart I shared a few months ago is this ETH Weekly one whose candles are colored according to the Elder Impulse trend-following system.
Buying on the first green Elder candle and selling on the first red candle would’ve outperformed most other crypto trading strategies over the past couple years. This applies to both ETH and BTC. Using this method, the last trade was to sell BTC at $50K (late Nov), and to sell ETH at $3.9K (mid-Dec).
This and the previous 2 sections show that the risk-on trade still has a lot of proving to do. As much as everyone on Fintwit seems excited that we’ve bottomed, we’re not out of the woods. I’m still cautious risk-on assets.
I mentioned last week that spot gold has a big hurdle to clear at the ~$1,910 level. With this week’s volatility, gold formed a reversal candle and closed below this resistance level.
The two largest gold producers offer us support levels to watch. Here is NEM and GOLD (Barrick) Weekly.
While the weekly charts are showing some negative reversals, bigger timeframes help us maintain a bullish perspective:
On its quarterly chart, gold is lifting up from a 10-year base.
The GDX Leaders Index still looks great (see below).
AMS Monthly. Anglo American Platinum is the largest primary producer of platinum, accounting for ~38% of world's annual supply. It’s making a 1yr breakout to new ATHs (see below).
The third segment of the market that I like (on top of gold and cybersecurity) is real estate.
LAND Weekly. It’s been a little while since I talked about farmland. I first blogged about it back in early Oct, and it was a big winner for me in Q4. Now this momentum leader is bouncing off of support and a fib level.
XLRE Weekly. Similar to LAND, XLRE is bouncing off support.
Areas that interest me are: Gold, real estate, and cybersecurity. All 3 are in uptrends on weekly/monthly timeframes, have been consolidating, and are now either on support or breaking out. Incidentally, all 3 are a little bit related as they all benefit from falling bond yields.
Much of the risk-on trade still has a lot of proving to do. Major turning points in markets can take time. Be patient and don’t react to every knee-jerk move. My motto:
That’s all for this week. If you found this post useful, please give it a like and share. Thanks for reading.
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.