Market Update 12/10/21

The bulls returned, and all eleven S&P sectors closed higher; however, only one gained more than the SPDR S&P 500 ETF Trust (SPY), up 3.82%. Technology (XLK) and Energy (XLE) were the strongest sectors, while Consumer Discretionary (XLY) and Utilities (XLU) were up the least.

S&P SPDR Sector ETFs Performance Summary

12/03/21 – 12/10/21

Source: Stockcharts.com

Figure 2: Bonnie’s Mix OF ETFs To Monitor

Summary 12/03/21– 12/10/21

Source: Stockcharts.com

Investors were attracted to Technology stocks last week, while Biotechnology remained out of favor.

The Santa Claus rally started. All major averages finished the week higher, and the Dow rose +4.02% breaking its four-week losing streak. The S&P 500 gained +3.82%, closing at a record high on Friday, and the Nasdaq was up 3.61%.

The Russell 2000 Index gained +2.43%, yet underperformed the major averages. The Value Line Arithmetic Index (a mix of approximately 1700 stocks) rebounded up +2.93%, implying the rally was wide-ranging.

Weekly market breadth improved on both the NYSE and Nasdaq. The New York Stock Exchange Index (NYSE) had 2476 advances and 1064 declines. Nasdaq had 3212 advances and 1821 declines. There were 186 New Highs and 244 New Lows on the NYSE and 219 New Highs, and 819 New Lows on the Nasdaq.  For this week’s rally to be sustainable, market breadth needs to continue to improve.

Figure 3: 10-Year US Treasury Yields

121021 UST 10YR Bond Yields Daily

Source: Stockcharts.com

10 – Year U.S. Treasury yields rose, closing at 1.489% (Figure 3), staying between support and resistance.

Support is 1.25%. Resistance is between 1.65% and 1.80%.

 Figure 4: Daily New York Stock Exchange (NYSE) New Lows

Source: Stockcharts.com

New Lows on the NYSE peaked 3/25/21 at 207 (orange circle) then contracted. The next highest readings were 95 on 5/11, 96 on 7/19, and 118 on 8/19 (green circle).

Since November, market breadth has been deteriorating with New Lows rising, a sign of worsening market breadth.

Watching New lows on the New York Stock Exchange is a simple technical tool that helps awareness about the immediate trend’s direction.

Learn more in my book, Journey to Wealth. Here is an excerpt, If the New Lows are above 50, it is an alert or warning of possible market weakness or a change in market tone. Be aware, it’s a good idea to make sure you are happy and comfortable with your portfolio. It is best not to have more volatile investments than you can handle where you feel uncomfortable. If the selling continues, you could have some serious losses if the market falls further. When new lows are above 150, the market is negative, higher risk, selling is taking place. Sometimes it could be severe, and sometimes on a very nasty day, you can have “panic selling,” and big wild swings (high volatility) to the downside may occur.

On 11/26 (brown circle), 202 stocks made new lows, the highest since March weakness followed before peaking on 11/30 (purple circle) at 280. New Lows then contracted, falling below 150 (blue line), the high-risk zone implying less selling pressure.

New Lows contracted closing at 73 (pink circle) on 12/10, not in the lowest risk zone, but a significant improvement.   It will be a positive sign if New Lows fall to between 25 and 50. On the other hand, a close above 150 would be negative, signaling more weakens, and high day-to-day volatility will occur in a usually seasonally strong, low volatility environment ending 2021.

Figure 5: Daily Nasdaq Advance-Decline Line

121021 Nasdaq Daily Ad Line

Source: Stockcharts.com

The daily Nasdaq AD-Line failed to get through the June downtrend (purple line) and turned down in September, making lower highs. The Nasdaq Ad-Line made a higher low in October, holding above the August lows (orange arrow), and turned up.

The first week of November, the AD-Line rose sharply to its highest level since 9/2 pink circle), stalling at resistance and turned down, breaking the October uptrend (blue dotted line), an advanced warning a decline was forthcoming.

The August uptrend was broken (orange line) and continued to the lowest low of 2021 (blue circle). A higher low has formed (brown circle), potentially a favorable double bottom if there is a turn up now. Watch for a break of the November downtrend (purple line) to imply more gains.

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” —Robert Kiyosaki

 Figure 6: Transportation Average

121021 IYT Daily

Source: Stockcharts.com

The Transports (IYT) rose in October but came under some selling pressure in November after breaking the October uptrend and meeting its upside objective.

Transports rebounded after falling three weeks in a row up 3.01%, closing at 270.28.  IYT penetrated first resistance at 267.50. If IYT breaks the downtrend, the next resistance is 274.00, followed by 280.00.

MACD (middle chart) is on a sell, barely missing a buy. A rally in IYT appears to be underway, and MACD is likely to generate a buy this week.

Support is at 268.00 followed by 256.00, and a close below 256.00 would negate my positive outlook.

It’s a positive sign Money Flow (lower chart) turned up the previous week and continued to rise last week. If money flow continues to rise, look for a test of the old highs before the end of the year. On the other hand, if money flow weakens and IYT goes below the low at 256.20, IYT may fall fast. An aggressive buy is if IYT falls to 238.00.

Figure 7: Daily iShares Russell 2000 (IWM) Price (Top) and 12-26-9 MACD (Middle and Money Flow (Bottom)

121021 IWM Daily

Source: Stockcharts.com

The top portion of the chart is the daily iShares Russell 2000 Index ETF (IWM), the benchmark for small-cap stocks, with a 50-Day Moving Average (MA) (blue line) and 200-Day Moving Average (MA), that traders watch and use to define trends.

A false breakout occurred in IWM after being in a nine-month trading range.

After falling four weeks in a row, IWM held 210.00 support and turned up gaining +2.42%, closing at 219.91.  The rally remains questionable, closing below its  50-and 200-Day Moving Average, and it remains in a downtrend from November.

Support is 217.00 followed by 210.00 and 205.00.

MACD (middle chart) remains on a sell, oversold, and below 0. A turn-up would create a favorable double bottom pattern.

Money Flow (lower chart) has stopped falling and is rising, a sign that investors are stepping into small caps in the short term. The intermediate-term remains in question. See Figures: 8, 9, and 10 below.

Figure 8: Weekly iShares Russell 2000 (IWM) Price (Top) and 12-26-9 MACD (Bottom)

121021 IWM Weekly

Source: Stockcharts.com

The Russell 2000 (IWM) (top chart) closed below the March uptrend (blue line) in August. A consolidation began, followed by new highs that stalled at the trend line in November.

IWM fell sharply for four weeks after a failed breakout. On the plus side, key support of 210.00 (green line) remains. IWM reversed higher trading within the previous weeks’ range (an inside week) up +2.42%. Resistance is at 230.00 followed by 240.00.

A weekly close below 210.00 would imply weakness with downside objectives to 195.00 followed by 180.00. A weekly close above 230.00 would indicate another rally towards the 11/8 high at 244.46 is possible.

MACD (lower chart) remains on a sell, falling, not yet oversold, and below 0 (red horizontal line), showing weak momentum. Be patient and wait for daily and weekly IWM relative strength vs. the S&P 500 to improve.

 Figure 9: Daily Relative Strength Ratio Russell 2000 (IWM)/S&P 500 (SPY)

121021 IWM SPY RSI Daily

A rising line means the IWM is stronger, and if falling, the SPY is stronger. IWM has turned up and is now leading in relative strength.

IWM continues to underperform the S&P 500 (SPY) after failing to get through resistance and breaking the August uptrend making a new low last week (brown circle) despite the rise in IWM.

Figure 10: Weekly Relative Strength Ratio Russell 2000 (IWM)/S&P 500 (SPY)

121021 IWM SPY RSI Weekly

Source: Stockcharts.com

The IWM/SPY ratio on the weekly chart also failed, breaking the uptrend from April (blue circle). The daily and weekly ratio charts clearly show no signs yet of outperformance of IWM compared to the S&P 500 in the near term.

Figure 11: Daily Invesco QQQ Trust (QQQ) Price (Top), Money Flow Middle), and 12-26-9 MACD (Bottom)

121021 QQQ Daily

Source: Stockcharts.com

The chart shows the daily Invesco QQQ, an exchange-traded fund based on the Nasdaq 100 Index with its 50-Day Moving Average and 200-Day Moving Average. In June, QQQ was in a trading range (orange rectangle) and then broke out above 370.00 in August, which failed. A decline followed to 350.00 support in late September.  After breaking the short-term downtrend 10/7 (blue line), QQQ continued to climb in November, close to its upside target of 410.00 on 11/22 with a high of 408.71 before reversing lower.

QQQ closed at 398.01, up +3.88%, led by Apple up +10.9% and Microsoft up +6.1% for the week. Both stocks combine for 23.05% of QQQ.

Figure 12: Invesco QQQ Trust (QQQ) Top Holdings 12/10

QQQ top holdings 120921

Source: ETFDB.com

QQQ broke the November downtrend and is only 2.6% from its high.  However, many growth stocks remain under selling pressure, have fallen 20-50%, and are nowhere near their highs. The top holdings will significantly impact QQQ performance whether the rise continues or a decline begins.

Support is at 390.00, followed by 380.00 and 370.00. Resistance is 400.00.

The lower chart is MACD (12, 26, 9), a measure of momentum. MACD gave a timely buy and remained on a sell as it did not get oversold, below 0.

The March uptrend (top chart) remains intact (pink line).  A close below 365.00 would shift the trend to down, make it harder to make money, and likely fuel more selling in Nasdaq. For now, the bulls remain in control.

 Figure 13: Van Eck Semiconductors (SMH) Daily Price (Top), Money Flow (Middle), and 12-26-9 MACD (Bottom)

121021 SMH Daily

Source: Stockcharts.com

Semiconductors had a great run in October, leading the technology sector higher. The October uptrend was broken (blue line), and the easy money is over.

Semiconductors rose +2.13%, closing at 307.55, with support at 296.00 followed by 286.00.

MACD (middle chart) remains on a sell after very strong momentum despite the rise in SMH. As expected, MACD declined as SMH rose. More time is needed for MACD to reset and go below 0.

Money flow (lower chart) continues to fall in a downtrend (blue line). I recommend caution until Money Flow turns up and breaks the downtrend.

 What to watch for short-term direction this week?

 Figure 14: New York Stock Exchange AD-Line

121021 NYSE AD-LINE Daily

Source: Stockcharts.com

In the top portion of the chart (Figure:11), The NYSE A/D line made a new high on 11/8/21, but since then, it has fallen, and it’s negative. As a result, the September uptrend is no longer in effect. As a result, it’s harder to make money with market breadth negative.

The November downtrend remains in effect.

The lows made in July, August, and September are essential to hold (blue circles), or a more severe correction is likely.

 Figure 15: I Shares Hi Yield Corporate (HYG) and 12-26-9 MACD

121021 HYG Daily

Source: Stockcharts.com

After peaking on 11/8/21, Hi-Yield Bonds (HYG) was under pressure, falling to their lowest level since May (blue circle).

HYG closed higher for the second week in a row last week +0.73% after breaking the November downtrend (green line) and holding above 85.00 support.  HYG closed just above resistance is at 86.63, and its positive Lord Abbett High Yield (LAYHX chart not shown) also rose, breaking its downtrend and holding the June lows at 7.40.

MACD (bottom chart) generated a buy and gained momentum after penetrating the September and July downtrend.

Continued strength in Hi Yield is favorable for U.S. Equities.  On the other hand, it would be negative if HYG closes below 85.00. and Lord Abbett Hi Yield (LAHYX) falls below the June low at 7.40. Be alert to capital gains distributions in December, where HYG and LAHYX will drop in price.

 Figure 16: CBOE Volatility Index

121021 VIX Daily

Source: Stockcharts.com

The CBOE Volatility Index ($VIX), a measure of fear, after rising 54.05% on 11/26 to 28.62 (purple circle), the highest close since 5/13 (blue circle) $VIX made a new high on 12/1 at 31.12 (black circle) and then fell sharply as the market rose last week closing at 18.69 on 12/12 (orange circle).

As long as VIX closes below 23.00, intraday volatility is likely to be contained.

Figure 17: ARKK Innovation

121021 ARKK Daily

Source: Stockcharts.com

ARKK, an actively managed ETF by Cathie Wood that seeks long-term growth.

ARKK broke its September short-term downtrend (brown line) in October and gapped up, followed by a failed rally. ARKK has sold off sharply since its peak at 125.86 on 12/04 to its low at 93.53, a decline of 24.10%

MACD remains on a sell, but its positive MACD has stopped falling and is in a position to generate a buy.

Short-term resistance is 103.00, followed by 105.00, 108.00, and 117.00.

Money flow (lower chart) was trending down and is not rising. Watch money flow for a turn-up, and if it breaks the November downtrend, it implies a potential rally in beaten-down growth stocks.

“Building wealth starts by managing your risk. The first step is to create a clear investment plan, developing trading habits that include risk management. Create a disciplined process to trade with the trend and not fight against the trend”. ~Bonnie Gortler

A lower risk buying opportunity is developing.

Figure 18: Daily Relative Strength Ratio Consumer Staples (XLP) /S&P 500 (SPY)

121021XLP SPY RSI Daily

Source: Stockcharts.com

A rising line means the XLP is stronger, and if falling, the SPY is stronger.

Consumer Staples (XLP), a defensive area, has been gaining strength compared to the S&P 500 since November, and on Friday 12/10, XLP made a new high last week. Notice the XLP: SPY ratio is making higher lows and now close to breaking the August downtrend.

Summing Up:

Tape action was better last week on improving market breadth for the short term. New lows decreased on the NYSE and Nasdaq as investors stepped in to buy.  Short-term momentum and volume indicators have turned up. However, it’s a mixed message for the intermediate-term trend of weakening momentum. Unless the rally continues to broaden now, it will be more challenging for a sustainable advance.  The Federal Reserve meeting is on 12/15, and Quadruple witching is on 12/17. The bulls are back in control now, but more caution is needed if Russell 2000 (IWM) closes below support at 210.00 and QQQ closes below 390.00.

Remember to manage your risk, and your wealth will grow.

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Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.

Bonnie S. Gortler

Bonnie Gortler, Consultant, Coach, and Author specializing in Wealth and Well-Being, is a successful stock market expert who has been instrumental in managing multi-million-dollar client portfolios within a top-rated investment firm during her over 35-year corporate career. As the author of “Journey to Wealth,” Bonnie has made it her mission to share the importance of risk management and how to enjoy real financial well-being by applying the technical and mental sides of investing. Bonnie has an M.B.A. and is a certified life coach. It is through her love of coaching, consulting, blogging, and social media that she creates change in the lives of many and inspires people from around the world. Bonnie is fully committed to your personal growth and development as she shares her winning spirit and powerful techniques with you. Visit BonnieGortler.com to gain tips and insights about investing, personal development, and inspiration through her articles on Wealth and Well-Being.
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