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Wobbly Market January 1, 2021

Posted by Tom in Thoughts.
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Dec. 31, 2020 – Not a whole lot new this shortened and light week. I am seeing some early signs of market internals weakening, so that’s my “story” about a “Wobbly Market”. I’ve got more work to do to verify this early signal indicator, plus the full market and it’s participants will be back next week, and that may verify the condition.

The chart below shows a calm market and my concern about tax selling in the final days of 2020 did not materialize. Money Flow dropped off but that is likely a symptom of low holiday volume in the between Christmas and New Years market. I note the Low price on Thursday is a near term support level with 12525 being the significant one.

click to enlarge

With the market rather quite I thought I’d give readers a little perspective on the economy and the market in general. First there is optimism in this market and that’s fine but where does the economy stand? The US economy is based on consumer spending and over 20 million Americans remain unemployed currently.

This chart just give perspective on how fast employment recovers from a recession, and by economic definitions, we are in a recession. The bottom line is that it will take years, not months to recover jobs. Once the vaccinations become effective in the second half of the year, things should kick into a higher gear. Corporate earnings (outside of on-line merchants, select technology and pharma companies) will take awhile to recover. 2021 will likely be a selective and focused market place.

Next who is in this market and are they prepared?

With the combination of “Covid stay at home” and “zero” commissions (which aren’t really zero BTW) activity in small volume call option orders has increased dramatically. The idea is that the market only goes up . . . it doesn’t. When reality hits this could cause panic and a bow wave of selling and margin calls (borrowed money), which drives the market down due to the late overreaction. Any news item could set this into motion.

This doesn’t have to keep us up at night but something to consider and be aware of. 2021 could very well be a very volatile market with changes happening quickly. OK, that’s it for 2020 and happy to see it go. 2021 brings hope but let’s stay focused on what we see and not just what we hope will be.

Take Care & Happy New Year ! ………………. Tom……………..

Price chart by MetaStock, used with permission. Sources as noted on charts.

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