Market Weakness? September 19th, 2020

The US markets closed lower with a small drop in the technology names. Energy was broadly up 3% but exploration and production was up 6%. Crude moved up almost 10%. More moves in the ag space occurred with the solid moves in Corn and Soybeans. Materials including industrial metals held up fairly well. Semiconductors held up on the back of a big acquisition bid by Nvidia.

The trend line on the $SPX broke and the Nasdaq 100 continued lower. Small caps were up on the week and to round it all out, the S&P 1500 held its trend line. This mixed picture is weakening. While market drops are rarely easy to trade as volatility picks up, the mixed results this week make it more difficult.

An explanation of how tricky the market is, the indexes were down 1-2%. Stocks up 10% or more outpaced stocks down 10% or more by 8x. For stocks up more than 5%, it was 2.5x more up than down.

Commodities were up on the week, with oil rising 10%. Oil moved up more than $3 and closed at $41.32. Copper moved up along with lithium and the rare earth metals. Steel stocks rose, coal stocks rose, agriculture names had a big week.

In currencies the Yen had a strong week. On the video, I cover off a relationship of Gold and the Yen. Essentially, when the Yen goes higher, I might expect Gold to go higher. We’ll watch for that this week. The relationship has broken down over the past year so I am watching to see if it reasserts itself.

As the market steps lower, the first part of the index waterfall was rather quick. It appears we are starting another drop down with Friday’s move below support. Because Friday was Quadruple Options Expiration, my caution level is high. But the selling did not intensify as we broke lower. I would be very cautious taking aggressive index positions either way. Watch for an upside reversal.

Summary: Ahead of the election, some patience is needed here. But it is a good time to stalk the names you want to own. Watch the charts for bottoming patterns. Some of the big names are off 20%. I did buy some commodity related names. It definitely seems to be a rotation going on from high fliers to cyclical economy stocks so far.

Let’s jump into the charts. Click on the image below to view the full newsletter in PDF format.