Market Trend Update — 01/11/2021
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For the SPX we see resistance at 4700 then 4735. Support lies at 4650 then 4600. According to SpotGamma, options were likely a huge driver of yesterdays price action, particularly in the QQQ. Despite huge volumes, open interest levels in both the S&P and QQQ were little changed. As a result, key levels are little changed. Yesterday was a “short cover rally” fueled by delta (puts closed/rolled) and vanna (implied volatility crush). Prices should continue to be unstable. If the S&P can break 4700 then we would look for an rather fast, extended rally into the 4750 area and a rejection of 4700 could lead to a quick test of 4650.
The mega-caps that have been propping the market up are now moving the market lower, as the markets breadth starts to normalize. According to the advance-decline line, which shows developments in the number of firms rising on the day minus the number of firms falling, little changed in the past few days because much of the weakness in the index has been from the mega-cap tech stocks, which make up a larger weight of the S&P. Energy and financials stocks have been doing well in the past week.
Seeing growth stocks like Shopify, Roku, Chewy among many others down 15–25% in the first week of 2022 really shows aggression in front running the rate hikes. We should be cautious as this could be a quick and aggressive continuation.
Key Takeaways from J. Powell Confirmation
- Digital Currency Report coming; Fed will be seeking outside insights/input
- No reason to believe a change in tone to interest rates
- No labor demand issues, we actually have a labor surplus
- Wage increases are the biggest threat to sustained inflation
- Senators continue to embarrass themselves with ignorance on how the Fed works
Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
