Hey 5-Star Trader,
We are almost done with the first month of the year, and wow. It has been a roller-coaster. January, which is typically a strong time in the market, has been extremely choppy.
So, instead of my traditional “Tuesday Trade” journal entry, I’m writing to you about the current state of affairs, and what I see in store for the rest of the week.
What happened Monday?
Yesterday, we saw considerably weak action hit the market. The S&P 500 morning session opened up low and was only trading into a 50% retracement on its 5-minute chart while heading into resistance at 4,310. The Nasdaq (NQ) also had broken a key zone at 14,000.
Sectors across the board looked poor as well. Semiconductors and cloud computing got hit hard, as well as Technology Select Sector (XLK), which broke the 200 simple moving average (SMA) on the daily chart. This is not a good sign as, ideally, I always want to see strong sectors and stocks hold their 200 SMA on the daily charts.
This kind of market action is concerning, and I believe this behavior is indicative of panic and fear. This means that, depending on how the cards fall, we could be in for another choppy week.
Other factors at play…
There are certainly several factors at play that could be attributed to the choppy market sentiment. Last week Netflix released earnings and then promptly got creamed. This was a sign of weakness, as Netflix (NFLX) is the first major earnings report to be released. Usually Netflix trades during this released report (good or bad) will set the tone for earnings the following week. Now, having seen how badly Netflix got hit, I am wary about how the market will react to big tech earnings reports set for this week.
The Federal Open Market Committee (FOMC) is another huge catalyst that we should all be watching closely this week after the Fed meeting today. And Federal Reserve President Jerome Powell is set to speak tomorrow.
The Fed is expected to raise interest rates several times this year, in addition to slowing down bond purchases. Should the Fed walk back any of those statements it’s possible we get a short-covering rally higher. However, it is entirely possible they stick to their promises and the market reacts with a tantrum.
Either way you slice it, I’m heading into the rest of the week with extreme care. Stay safe traders!