2020 is Behind Us- January 2nd, 2021

The markets pushed up early Monday, traded sideways until Thursday afternoon. With 2 hours to go, someone put in a 2-hour buy order, pushing the markets to close in the top right corner of the charts for the day, the week and the year. The US markets closed the year at the highest levels after incurring a 35% drop in the first quarter of 2020. It has been a remarkable year as names like Peleton and Zoom soared, while main street America struggled to get past the 2019 highs.

The week ahead brings more political swagger with the Georgian elections deciding how smoothly the incoming administration policies get passed. Next week, the protests planned for Washington by the outgoing president come to the fore. I am not sure if this is one of the reasons for the rise in the Put/Call ratio. We’ll see how it gets absorbed by the investing world. Outside America, I think it is all about global indexes, which had a strong week to close out the year. That’s bullish!

Bitcoin continues to delight after breaking out to fresh highs two months ago. Bitcoin had a 25% week -again-, but it’s not hard to think that multiple 25% weeks in December leads to some sort of pause sooner than later. I am focused on the US Dollar here, expecting a start-the-year reversal, moving the dollar higher against world currencies. The setup is there, watch to see if it plays out. A surge in the dollar would probably roll over the commodities so be aware of that. The industrial metals like copper were down a smidge, but the rare earths and lithium had another strong week.

The Schnell Strength Indexes continue to weaken, with the two fastest indicators (Chart 2 below) both below 50 and the SSIH down 20% from the highs of this rally. I expect further weakness. The picture of the frozen lake at the cabin this morning is a bit like what we have seen for December with relatively quiet flat markets, and a few stocks gliding quickly across clean tech and commodities.

Summary: I am now cautious as my strength indicators suggest. I’ve raised cash to 70%, but still hold some investments. My larger time frames suggest this pullback is a blip, but other big caution signs loom like the lower PPO right now on the Nasdaq.

Let’s hit the charts.