3/10/2023F Market in DOWNTREND. Nasdaq drops hard below 200-day m.a. line for first time in 6 weeks.
THE MARKET’S MESSAGE: Nasdaq & S&P500 50-day lines are holding close to 200-day lines extending sideways action and showing indecision.
A REVIEW OF THE PANDEMIC’S PATH IN THE NASDAQ from 2020 TO TODAY.
The warning of the possible widespread COVID virus, flipped a rising market into a 33% drop in just 5 weeks. It took 13 weeks (a whole quarter) to return to that pre-pandemic high and a year and a half to hit the last high. But the journey was not over. In 10 months the market fell back to 2.6% of that February 2020 pre-pandemic high. Since then the market has wondered up and down, but never below the February 2020, pre-pandemic high.
Let’s take a closer look at that journey. Please send me any lessons you’ve learned during this 3-year journey. I will consolidate them and share with all in a future ACI newsletter.
The journey from February 2020 to today
After hitting an all-time high in November 2021, the Nasdaq dropped hard and fast, losing 32.6% in 5 weeks. (We were scared!) Whether it was the money that
fell into people’s bank accounts from separation packages (earning as low as the%), the time the unemployed now had on their hands, or the enthusiasm of the talking heads on TV, the cash ran into the market causing it to rise.
As new and old investors had seen almost everything they invested in rise, they pulled more money out of savings, retirement accounts, etc., and threw it into the market, pumping the market higher. We all made fabulous returns!
The 20% rise in 6 months generating some profit taking and the first 3-week dip of the market (in September 2020,)slowed down the inflow of money into the market for 3 weeks. When new and old investors saw the market was not dying, and without any likely easy high-return alternatives, they continued selling investments that had grown and reinvested into the next “honey” stocks.
But slowly, the extraordinary returns of 2020 - 2021 slowed down. (Look at the growth slope lines I’ve drawn on the weekly Nasdaq chart below.)
By November 2021, the Nasdaq had risen 144%. Many who had never managed their investments decided they were now “brilliant” investors.
But sadly, after such a long Uptrend(and with a little bad news), the market introduced us to the term “Downtrend” as it sank – first just a little, then after 3 big down weeks in January 2022, the market fell faster, taking back much of the pandemic gains.
Led by a market reversal which continued for almost 2 years, the Nasdaq dropped back to within 3% of its pre-pandemic high of 9838.37. During that wild time, most of us made significant gains in our personal portfolios as the Nasdaq rose 144% from the initial pandemic low to its all-time high. I hope you did not hold on during the downtrend periods. Look at the weekly chart of the Nasdaq over the last If you watched the positions taken in this newsletter, you have a nice net win so far. I will watch for the opening price of the QQQ Monday morning and market that as the sell position for this newsletter.
So what is up with the Nasdaq recently? Look at the shift in the Nasdaq 5 weeks ago. (See arrow below)
At the start of the new year, the Nasdaq:
· Rose for 6 weeks in a row, climbing above its 50-day line. I had hope for a continued rise, but if you have followed this newsletter for a while, you may remember a very important phrase I repeat frequently…
“HOPE IS NOT A STRONG INVESTING STRATEGY!!!”
· The NASDAQ tumbled lower for 3 weeks, then skated sideways (mostly above) its 200-day black moving average line for the first time since January 2022.
· Last Thursday,the Nasdaq closed below its 200-day line and with news of a possibly imminent downtrend.
Please remember….. “Hope” is not a sound investing strategy.
An IMPORTANT ADDITIONAL NOTE:
>>>> There is a divergence between the three major indexes and the QQQ in their level of being bought and sold – as shown by the IBD Accumulation/ Distribution ratings. I am pleased by how well the QQQ is doing – even compared to the Nasdaq!
And last week's daily action for your reference.
When you review the last 20 trading days on the table below, you should note the bottom two days have their price highlighted in RED indicting these days were new lows in the last 20 trading days.
On the MARKET FACTORS, COUNTS & RATINGS table below, note there are few GREEN number boxes – Market Direction of UPTREND, the Nasdaq’s A ”Accumulation rating" ratings. The Nasdaq is the only index above its 50-day moving average line (by at least 2%).
Note: In the table below, you will almost always see only red across the bottom row, because as soon as an index hits a new high, if it closes down just 5%, it will show its price below the prior high.
Are you holding onto stocks that you like in spite of their chart action? Not me! Cash is always a safe alternative. But note with this broad rotation (past highly rated stocks being sold and under rated stocks being bought,) THERE MAY BE AN OPPORTUNITY TO IDENTIFY NEW RISING STARS!
>>>>> When you look at the last 4 weeks of the ACCUMULATION/DISTRIBUTION RATINGS table BELOW, what do you see happening?
Look at the change in percent of A-rated plus B-rated stocks (right most column) over the last 4 weeks!Wow.
Yes! The A and B rated stocks have dropped by 24%. That happens when the prior winners are being sold off to take the profits “off the table” and put them in the investors’ pockets.
>>>>>>>>>>>>> PLEASE READ THE FOLLOWING NOTE >>>>>
>>>> One addition note: Last week was the first week where the “C”rated stocks also fell (SEE THIS IN THE TABLE ABOVE.) This change tells me the big boys (institutional investors) have sold off all of their weakest A and B stocks…. And they are still looking for a way to get cash OUT OF THE MARKET.
NOTE: A long time ago, I learned (after paying for this lesson multiple times…..) I learned two important lessons:
1. I am NOT smarter than the market. And,
2. The market does not care about my “fine” opinion.
When I see the institutional investors selling hard (as shown by the drop of ”A” and “B” rated stocks, I am happy to step out of the market by selling my QQQ position.
NOTE: If you have individual stocks or ETFs that are holding up well, you certainly can hold them. But please keep a tight rein on them.
Remember: Stocks usually fall faster than they rise!
Wishing you, “Many Happy Returns.”
Charlotte Hudgin, The Armchair Investor, (214)995-6702
www.ArmchairInvestor.com (214)995-6702 email@example.com
2023 ACI NEWSLETTER sent via WEBFLOW