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Stocks Drop Sharply On January 4 With Perhaps More To Come

1/4/21

Stocks – AMZN, ROKU, GME

Macro – SPY, GLD

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Stocks had a weak day, with both the S&P 500 and the Qs falling by around 1.5%. Perhaps there was merely some de-risking ahead of the run-off election in Georgia tomorrow, or perhaps the market is merely unwinding from very overbought conditions.

I was looking for a move lower last week, with a push back to 3,700, which is where we closed today. But intraday, it was steeper than that, with the index falling to as low as 3,662. (Paid SA Market Place Premium Content – Morning Note- Risk-On May Be In Trouble)

A pullback to 3,550 would not be surprising to start with; it would mark a 38% retracement of the November election move up. Could it be worse, sure? I have been through several scenarios that point to lower levels. But we need to take it one step at a time. We have seen too many of these one days sell-offs quickly turnaround.

It is not that I am trying to be pessimistic. Stocks rise and fall, and when stocks get too overbought, they need to correct and cool-off. It allows for normal functioning. Markets that overheat are no good because they tend to overcorrect.

VIX

The VIX quickly rose to around 29 before settling around 27.

10-Year

If there was a hint of de-risking today, it certainly was not in the bond market, with the 10-year basically unchanged.

Gold (GLD)

Gold appears to be finally breaking out of the bull flag pattern. Perhaps it the safe-haven asset class; perhaps it is not. Either way, the chart looks bullish, and I think it goes higher, towards $2,300 over the next few months. 

Amazon (AMZN)

Amazon fell by more than 2% today, and tomorrow is a potentially big day for the stock. If it drops below $3,100, it likely means that lower prices lie ahead and that my $2,850 target is still in play.

Roku (ROKU)

If the RSI on ROKU drops below 50, it will signal a very bearish change in the stock’s trend, and not for the better.

Gamestop (GME)

Another painful day for Gamestop, falling more than 8%. Unfortunately, it may not even be done falling, with an RSI only at 51. It needs to fall below 30 before hitting oversold levels. A drop to $15.50 is still alive; even though I originally wrote in my story, I thought it could fall to $17.25 on a technical basis, which is where it closed today. The other side of a CONVEXITY squeeze can be a real hangover. (Should still be free to read- GameStop’s Soaring Stock May Crash And Burn).

Anyway, that’s all I got today. Until tomorrow

-Mike

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