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Friday, March 5, 2021

The market is acting poorly, but might bounce from here 3/5

Small cap stocks started the year on fire, but since 2/10 they have been struggling mightily.  In addition, most of the big tech names which have been leading the market for years are not acting very well.

SPX tested the lower channel line both yesterday and this morning before bouncing strongly.  Volume was strong today.  This looks like a good bounce setup providing there is follow through on Monday.  The VIX is acting very odd this year.  It has been over 30 twice already with only little pullbacks.  I don't know exactly what it means, but it is not quite normal.

The futures tested the 200 SMA pretty well the last two days.  This afternoon's bounce makes the chart look reasonably positive.

I believe some investors are selling overpriced stocks because of rising rates.  I also think other investors are busy buying the dip because the FED is printing money.  If rates continue to rise the market will probably continue to struggle.  On the plus side, the DC folks are talking about more stimulus.  Stimulus could help to keep a floor under the market for now.  We might be limited on the upside by interest rates and supported on the downside by fiscal stimulus.  Breaking the 1/29 SPX low (3694) would probably tip the scales to the bears.

The biggest risk to the market would be a pullback big enough to start another margin debt unwind.  We saw what happened last year when that happened.  As of Jan., the margin debt was about 42% higher than it was Jan. last year  Should it unwind again we could be in for a bigger drop than last year.  The trouble is unwinds are very unpredictable.  It will happen someday, but there is no telling when.

Have a great weekend,  May God bless you with peace, good health, and happiness.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.