The Nasdaq is testing swing lows and highs in choppy market conditions
Plan your trade and trade your plan keeps you out of a lot of trouble. Making sure to keep risk low and hold on to your winners is another good idea. But as Mike Tyson said, “everyone has a plan until they get punched in the face”, and that is what trading feels like now. Whatever you think is happening, it probably isn’t. What we do know is that the volatility is higher, the ranges are being expanded, so stops are being hunted, triggered and liquidity taken. So, the results are like moving bathwater. You slosh it one way and then the other. Keep planning your trades but have a plan B, as you are going to need it sometime soon.
The stock market indices are on a roller coaster journey between recent highs and swing lows. Inflationary pressures, end of month rebalancing, new COVID-19 variants and monetary policies are interwoven with some market participants looking to cash out at the top and then your regular dip buyers who still see these markets going higher with a Santa Rally into the end of the year.
Today is the 1st of December 2021 and as the US markets are about to open the Dow Jones Industrial Average, S&P500 and Nasdaq are all 258, 38 & 120 points higher respectively now, compared to when regular trading closed yesterday.
Yesterday started off with Moderna saying their vaccine would have less efficacy against the Omicron variant which brought the markets down initially, then when Fed Chair Powell stated that “now was an appropriate time to retire the word transitory” in reference to the high levels of inflation in the USA, the markets freaked out.
It is hard to explain my views on what Fed Chair Powell said but it should be stated that the commodities that had exponential increases in price due to supply shocks are a significant way off their highest prices. Energy is the biggest cause of concern politically and is around 25% off the most recent highs. So, for Powell to say he is retiring the word transitory on probably the day when the evidence was highest that inflation is transitory makes no sense to me. Other than that, he and the Fed have succumbed to the market calls for a faster taper and some rate hikes soon. From the two sets of data above October was the high point for commodity prices and that coincided with the recent dip in the equities markets.
November’s fiscal flows are going to come in around $600billion based on the $30billion 10-day average flows that I have been monitoring. This will be up from October and from November 2020 which came in at $486 billion.
There is another risk event approaching and that is on Friday, 3rd of December the temporary solution to the US debt ceiling needs to be rolled over, or some sort of agreement comes to with regards to extending the US debt ceiling. Otherwise, we could get a US government shut down, with a renewed possibility of the US defaulting on their debt. Both of which would be unnecessary but there is no telling what madness the lawmakers and politicians will throw at the markets for political gain. The end of the week is going to be exciting as we also receive the latest NFP jobs report data. If there was to be a period when the US Federal government shut down that would affect the fiscal flows and we would most definitely have a deeper market correction.
Today the ADP jobs report came in higher than expected which is good news for the Feds dual mandate. A statement in the report said: “The labour market recovery continued to power through its challenges last month. November’s job gains bring the three-month average to 543,000 monthly jobs added, a modest uptick from the job pace earlier this year. Job gains have eclipsed 15 million since the recovery began, though 5 million jobs short of pre-pandemic levels. Service providers, which are more vulnerable to the pandemic, have dominated job gains this year. It’s too early to tell if the Omicron variant could potentially slow the jobs recovery in coming months.”
A couple of months ago during a post FOMC meeting press conference, Fed Chair Powell said the NFP numbers would need to be around 550k-600k per month to ensure the labour markets were rising in line for full employment. The markets forecast for this Friday’s NFP is for 553k and today’s number will bolster that viewpoint.
The November 10th-11th low in the Nasdaq is a key support level, which if it were to be broken would set the correction phase up as we would get a change in market structure. In the past, these structural changes have sometimes been a fake-out move or liquidity grab. Depending on your viewpoint. If we get the structural change, plus a more bearish sentiment due to either Omicron or something to do with the politics, this would be a signal to look for a more long-term correction. If however, we find ourselves sweeping the lows on something like a headline news event that doesn’t relate to the GDP of the USA I would expect that to be a bear trap.
The world is in a better place than in February-March 2020 when there were no vaccines to fight COVID-19, however, we need the current vaccines to be able to protect against the new variants, or better still, the variants to be less life-threatening. We haven’t cured a common cold, so we will have to live with COVID for the rest of our lives. The Thanksgiving holiday market was a perfect set-up for a market crash and for weak hands to be shaken out of the markets.
If Fed Chair Powell does anything new to spook the markets and we take out yesterday’s lows I am using the Fibonacci extension tools to predict a further fall to at least 15876 and then on to 15681.50 based on the ranges formed yesterday. If he decides to walk back some of his testimony based on the market reaction, we could be testing the all-time highs by Friday’s NFP and the signal for that would come from a break of yesterday’s highs.