Extremes are Worrying- December 11th, 2020

The trucks are now rolling out Pfizers vaccine this weekend after the FDA approved it late on Friday. That’s huge! So vaccine injections start Monday. We also have the Fed meeting Tuesday and Wednesday. Moderna’s vaccine is up for approval on Thursday December 17. But that’s not all for this week. To round out the week, we have options expiration (OE) Friday. The last 4 years, this OE has been a positive swing and the market runs into the new year. It all adds up to lots of reasons for volatility. We still have the possibility of a stimulus package.

The market has been expecting a trade deal between Great Britain and the EU. Currently, they are deadlocked without one and a year-end deadline. The longer this goes, the more unstable this trade relationship is for the markets. The charts below show the British Pound and Euro both stalling at horizontal resistance. This is covered in detail on the video. The other international chart that was oddly shocking is the Shanghai index. It closed on 4-week lows.

The only sector up on the week was energy. Seriously. When was the last time we said that? There is an undercurrent of selling in many of the market areas, and my strength indexes are starting to drop. The SSIH is still bullish but moving lower. The title this week is reviewing extremes in the current market. We have numerous warning signs now in momentum on the SMH ETF and the $SPX compared to the $NDX. I’ve discussed these below. A blindfolded gnome might miss these clues.

Commodities were odd this week. Uranium, steel and oil names moved up while copper stocks moved down even though copper held up. Gold wobbled for the most part. The huge weakness in the Shanghai market never bodes well for a commodities chart, so we are now on watch for potential setbacks in our commodities rally. I covered this on the video.

The short end of the yield curve has me perplexed. A massive move down in 2-year yields surprised me. The 5-year is also a little odd. More on the video.

Summary: I am bullish and continue to be. I’ve lost a big portion of my positive reasoning this week with my strength indexes dropping, but we still have a few bullish things on the horizon. It is time to use tighter stops in my opinion.

Let’s hit the charts. Click below to view the full PDF.