3/20/22

STOCKS – ADBE, DOCU, AMZN

MACRO – SPY, QQQ, SMH, IWM

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• RTM Tactical Update: Expecting A Surge In Volatility
• RTM: The Importance Of The Fed Balance Sheet To Stocks
• RTM: Stock Rally Missing Key Ingredients For Longevity
• RTM: Markets Come To Critical Resistance Region
• RTM: Tracking Options Trades And Delta Hedging [Edu. Content]

THIS WEEKS FREE YOUTUBE VIDEO:

Stocks May Give Back Their Big Gains The Week of March 21

So stock continued to rally into options expiration, and now that it is over with we should see the pace of the market slow. The rally, although strong, I believe was mostly related to OPEX, and by pounding, I am taking on Twitter, it would seem the bulls have their guts back, and are again feeling like they are in charge.

Unfortunately, most of the evidence I see continues to suggests we will not see an all-time high anytime soon, and more than likely trading sideways, similar to what we saw in the 2015 and 2016 time frame, at least until we start to get more details on the balance sheet run-off which should come in about 3 weeks times, although Powell does speak prior to the Fed minutes. Additionally, I expect that Fed governors will begin to indicate the balance sheet running off at a pace of about $100 billion a month, the Dovish Fed governor Kashkari already indicated as much.

The chart below shows, why I think we may be in for a period of sideways consolidation in the equity market essentially going nowhere in 2015 and 2016 as the balance sheet was stagnate, and in the process of actually falling to some degree. Then in 2017 as the balance sheet stabilized and even increased some, the S&P 500 was able to rise. But clearly once the balance sheet started its decline in 2018, the equity market endure a lot of choppiness and big price swings.

This time around, we will go from 2016 straight to 2018, which means between now and May the market may be in a consolidation phase, and then in May that dynamic changes again.

S&P 500 (SPY)

Anyway, so the S&P 500 did break the downtrend that started at the peak in January. But if you remember my Fibonnaci grid, from around that time, which seems to be working fairly well, it shows that the recent rally took the index back right to the trend 1.68% extension trend line, which for now is serving as resistance.

Additionally, there is a gap that needs to be filled around 4,480 which will tell us a lot about what happens next in this market. If that level of resistance breaks, I would look for a retest of resistance around 4,590, and then 4,650.

However, we have seen this pattern of sharp rallies in the SPX and the Qs before. As I pointed out in my video over the weekend, the rally in the market nearly perfectly mimics the move at the end of Decemeber and January. If it ends the same, we should see a period of sideways consolidation start this week, once the gap at 4,480 is filled.

The term breadth thrust is being thrown around a lot on Twitter, and this breadth thrust is actually thus far weaker than all the previous thrust during these same 4 day rallies, on the NYSE.

and the NASDAQ

NASDAQ (QQQ)

Additionally, the options cycle appeared to have a very material impact on the market this week as well, as the chart of the QQQ shows below. The only time the cycle didn’t work was in October. The March cycle seemed to shift, quite possible because of the FOMC meeting, which was two days prior to the OPEX.

Much of the evidence continues to support the idea that this market rally from the last few days, was likely a giant squeeze, with copycat patterns galore, and if these patterns persist, there is a lot of evidence to suggest a consolidation this week or very sharp pullback.

Semis (SMH)

For all its might the SMH ETF, which rose by 13%, was unable to push above resistance $270, and unable to recapture its up trend. Not bullish from a sector that was very much the leader of the market for the past 2 years.

DocuSign (DOCU)

DocuSign had a huge rally this week, but at this point it looks like nothing more than a gap fill. DocuSign is a good stock to watch this week, because it has been battered, and if it can continue to rally, then may be sentiment has really shifted.

Amazon (AMZN)

Amazon did break it is downtrend this week, and the RSI looks strong. However, it needs to clear the uptrend that started in July 2020, and resistance around $3,250 for the rally to see a more pronounced rise to $3,450. If it is unable to clear that $3,250 to $3,300 region, I think it will just head back to the recent lows. So a lot can be proven here.

Russell ETF (IWM)

The IWM ETF had a big week too, but notice where it stopped, right below resistance at $208. Could it still have to climb, sure it hasn’t reached resistance yet, but there is a lot of resistance to come for the IWM.

Adobe (ADBE)

Adobe may be the stock to watch this week, with earnings expected, which comes on March 22. This is could set the tone for the technology sector, especially following weak commentary from players like DocuSign. Adobe sits just a above a huge level of technical support at $415. I’m not going to try to guess what happens here.

-Mike