By: Tom Gentile
on December 14th, 2022
Originally published via our newsletter previously. Subscribe for early access!
The Consistent Rationale Given to why the Stock Market is Dropping
Headline news in financial news print, media – online or televised is likely going to lead with the story about the markets (the S&P 500) trading down now 5-days in a row.
The follow up and gist to everything else that will be written and or discussed is going to be what they believe is the primary catalyst for that, which will be stated as investors concern about the Fed’s continued policy of raising interest rates.
The fear is they will continue to do so and that risks inducing a recession.
The hope that keeps getting brought up as well, is that of the Fed being able to engineer a so-called soft landing while successfully bringing down inflation, which is at or equal to highs not seen in 40-years.
On the economic data front we are going to get jobless claims data due out Thursday, November’s producer price index and preliminary consumer sentiment data for December on Friday.
— Tom Gentile
C1P: Chief 1-Percenter
Corners of the Market
SPY – SPDR S&P 500
If support is broken Fib levels are shown below as possible target/future support price levels.
TLT – iShares 20+ Year Treasury Bond ETF
A look at the Fib Retracement levels is to see if TLT might be running up into a potential resistance level.
UUP – Invesco DB US Dollar Index Bullish Fund
The US Dollar as represented by the chart on UUP is in a downtrend over the date range shown in the chart image above.
As long as the UUP slides it brings the anticipation of stocks to go higher as there is more often than not an inverse trading relationship between equities and the US dollar.
The markets have rolled over, as mentioned already, a handful of days in a row, but that hasn’t resulted in UUP trading that much higher.
Does this mean UUP is due to continue to slide once equities finds support and goes higher?
Or will equities and the US trade a bit more correlated as investors digest more economic data and we get to the Fed decision on rates in December.
USO – United States Oil Fund, LP
USO continued it slide from last week’s Tom’s Newsletter.
It is now at the previous bottom established back in September.
We could call this a double bottom, but this price was reached today, and we will need to see over the next day or more if it will indeed bounce from here or not.
Of it does, we would feel more inclined to call it a double bottom.
These recent 5-trading days have all been bearish reversal days and the ranges have been fairly large giving the impression things could sell off even more.
You can look at a multitude of other indicators or oscillators to try and give you a reason to go long, but right now this is a situation where fighting the trend doesn’t seem like a good idea.
GLD – SPDR Gold Shares
GLD is down from resistance from 5-trading days ago, which can be considered a double top as it hit that price previously back in August and rolled over a bit.
There is a gap that has been filled, which when that happens could lead to a bounce and resumption of the trend it came from.
Well, it bounce a bit today and closed higher, a bullish reversal day.
The challenge for GLD and one investor or options trader has to determine in their minds is if they believe it will find resistance and roll over again or will it break through that and trade higher.
An aggressive trader may go long now but be mindful of resistance and know your stop loss price or percentage and adhere to it.
A conservative approach and one that requires patience is to consider seeing if it breaks above resistance and then tests it a day or two as new support before making a directional call.
Tools and Observations
The question to ask is will the markets continue to roll over or will it find its footing at this ascending support line (shown in the panel for the SPY in the Corners of the Market section of this newsletter.
A few weeks back we showed how to use the correlation analyzer in the tools and if one feels a further decline is imminent they can look at a current view of what stocks correlate best to the SPY and if SPY is to roll over those stocks that correlate with the SPY may be the ones bearish options strategies can be used.
To get to the Correlations do this sequence: Stocks > Stock Analysis > Correlations and you get this page.
Here are the first 10 stocks in the result list that one can start doing options analysis on and or discuss with their broker.
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