We're Partying Like It's Early 2021
Yes, there are lots of differences, but the similarities include the unwinding of all of that speculative stock market activity.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
There are probably a gazillion reasons this market doesn’t remind you of early 2021, but for me, there are some similarities. In 2021, we had SPAC-mania. Everyone was investing in SPACs. They believed they were the next best thing. Until they weren’t.
But it wasn’t just the SPACs that got taken to the woodshed. It was a whole host of other related speculative stuff that had to go through the process of shaking out the weak holders, and, unfortunately, people lost money. Many of the names that were hot then are but a shadow of themselves now. Peloton, Beyond Meat, Tilray. It didn’t matter the business; they were all speculative stuff that burst.
Now consider what has transpired since the election. We had that run-up in crypto garbage. We had that penny stock craze when stocks that trade four cents ran up on billions of shares, ruining the statistics as we could not get a proper read on volume with all that speculation.
And let’s not forget the Quantum stocks. How much money did that suck in before it got spit out? What is there to say about a company that used to be a beverage company that changed its name to Quantum Computing so the stock could run up to 27 but now resides at 5?
I believe we are witnessing the unwind of all that speculation.
I do not think we’ve gotten any panic. We have gloom. If we had panic, we would see 90% of the volume on the downside. Instead, we saw 79% on Monday. That’s better than the mid-60s we saw all week last week, but it’s not panic.
If we had panic, the put/call ratio would be over 1.0, and while we’ve had five of the last six trading days with a reading over .90, we have not seen one day with more puts than calls.
However, my own Oscillator will be oversold later this week. You can see Nasdaq is closing in on levels we’ve seen over the last year. The math says it can go lower, but by Thursday or Friday, even this will drop a string of big red numbers, making it oversold.
When I do an exercise with price, where I walk it lower over the next week, I look for the point in time that the indicator goes up, even if the price goes down. That occurs Tuesday or Wednesday this week. Keep in mind this is not meant to pick the exact date but rather to give you a time frame, and that time is this week.
In case you are wondering, I can do the same exercise with the Russell, and it too starts to go up on Wednesday.
Keep in mind that the IWM broke 215 last week (so did MSFT and the SOX break their respective levels), so that will be some serious resistance if we do get an oversold rally.
