June 6, 2020
Stocks – PYPL, HD, FB, ROKU, NFLX, TLWO
Macro – SPY, QQQ, IWM
MIKE’S READING THE MARKET PREMIUM CONTENT $35/MONTH OR $300/YR–
Stocks will try to keep their massive rally going this week, but with an FOMC press conference on Wednesday, anything can happen. The most significant risk to the market is an indication that the Fed will pause its QE program or continue to wind down the purchase of Treasuries. The Fed’s balance sheet expansion has seen a noticeable slowdown in recent weeks.
By the way, the correlation between the NASDAQ 100 and the Fed Balance sheet is just 0.687, with an R^2 of 0.47 since QE started in ’09, so not the strongest correlation.
S&P 500 (SPY)
Following Friday’s rally, the S&P 500 is now overbought based on the Bollinger Bands and the RSI. Still, it doesn’t mean the index can’t continue to run higher to start the week, with the next level of resistance around 3,265.
Nasdaq 100 (QQQ)
I took a fresh look at the Q’s because after being so horribly wrong on several occasions, it seems it is worth a shot. The Q’s do have an RSI that is now over 70, and what appears to be a rather large rising wedge pattern. It would suggest a pullback is on the way, perhaps to $224, then $203.
Qs to IWM
I pointed out this chart to subscribers in the midday commentary, I think, on Thursday. It is the ratio of the QQQ/IWM. It suggests to me that the Qs are due to fall relative to the IWM. Perhaps back to the 1.4 level. It could merely mean that Q’s fall and IWM rises, or the Q’s fall at a faster pace than the IWM.
There may be a head-and-shoulders pattern forming in Netflix, and a break below $397, likely sets up that drop to $360.
Roku doesn’t look good again, with an RSI that is trending lower and a stock that is sitting on support. A drop below $102 sets up a fall back $80.
Facebook now has a bearish divergence in it, and the stock appears to have formed a descending triangle, with a break of support at $220, the stock probably drops to $201.
Twilio looks like it may have a head-and-shoulders pattern too, and a break of the neckline at $178 sets up a decline to $151.
Home Depot (HD)
Home Depot also appears to have a rising wedge pattern that has formed. It could result in the shares falling back to $235.
PayPal continues to lose momentum as the RSI trends lower. If the stock breaks the uptrend, it likely fills the gap back to $130.
Maybe the markets can be kind to me this week and give me a win; it feels like it has been a while.
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