Weekly Update

January 8, 2016 Update


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Look at the QQQ

After a disappointing 2015 for investors, we begin the year looking at our focus Nasdaq 100 (QQQ) index. Monday’s plunge in stocks to welcome 2016 gapped below the index’s support level, shown below as the blue bar between 4500 and 4600. The index had failed repeatedly to forge ahead to new highs in November and December (the purple bar across the top Chart 1). This failure occurred despite extraordinary strength in some of the index’s main components – e.g. Amazon (AMZN), Google/Alphabet (GOOG and GOOGL), and Facebook (FB). These three stocks (actually four since Google/Alphabet is represented twice in the index) together comprise about 20% of the Nasdaq 100, almost twice the weight of Apple (AAPL). (It wasn’t long ago that Apple was routinely above 20% weight in the QQQ).

Chart 1: The Nasdaq 100 gives up short-term support after failing to break higher

The Nasdaq 100 gives up short-term support after failing to break higher

After such massive gains for these stocks in 2015, surely they will struggle to continue driving the index upward. One of the other major candidates for driving growth is Apple which has now failed twice to break out to a new uptrend as seen below and is in danger of actually breaking to the downside.

Chart 2: Apple has lost its luster

Apple has lost its luster

The leading sector of the past couple of years has also fallen on harder times as biotech looks to be engaged in a series of bearish wedge moves, this week breaking downward out of the latest wedge and having dropped almost -20% from its highs of last summer.

Chart 3: Biotech struggles to gain its footing

Biotech struggles to gain its footing

This is all occurring as the volatility of the Nasdaq 100 index edges higher reflecting the increasing uncertainty and skepticism of the index’s investors – see red box above in Chart 1.

This negative posture can change on a dime as it has time and again throughout this seven year bullish stretch. But the failure of stocks to sustain any rally effort through the second half of 2015 and the struggles of its best-performing index, the Nasdaq 100, point to near-term challenges as the market looks for new leadership in 2016.


Any predictions for the market in 2016?

Some enjoy the annual projections of the market’s endpoint for the New Year. We admit freely that we have no clue what the market will do tomorrow, next week, month, or throughout the year. That is precisely why we are model-driven investors not hewed to any particular market or economic idea. For those that enjoy such projections, we direct you to this nice little summary of 2016 market predictions:
Here’s what 14 Wall Street pros are predicting for the stock market in 2016


Market Update

Stock market investors might wish for a do-over in the first week of 2016 as stocks posted their worst start to a year in history. Sunday night saw China’s stock market fall a maximum -7% on a weak manufacturing report. That report plus a widening of the rift between Iran and Saudi Arabia added to tax-related selling in the few U.S. stocks that posted gains in 2016. Stocks slid -1.5%. Tuesday brought a report that Apple (AAPL) is reducing production of its iPhone thus pressuring that market heavyweight stock in addition to the shares of its suppliers. That news plus continued shakiness in China kept the lid on a rally attempt leaving stocks little changed on the day. China devalued its currency heading into Wednesday’s session.
A report that North Korea detonated a hydrogen bomb as a test further unnerved investors. Making matters worse was a -5% drop in oil prices and a reduction in the global economic growth outlook by the World Bank. All the negativity peeled another -1.3% off stock indexes. Another -7% max loss in China’s stock market (capped per Chinese market policy) amid reports of further Chinese currency devaluations to come sent investors reeling as U.S. markets opened Thursday. The maximum allowed loss in China occurred in all of 30 minutes to pour more fuel on the bearish market fire. Midday rally efforts failed to hold leading to a miserable -2.4% market day. Investors had no interest in holding stocks overnight after Chinese authorities announced they would remove the -7% max loss cap and let shares fall as they will. However, the Chinese market held up OK leading to a positive open on Wall Street. But the slim rally attempt found little enthusiasm and faded once more in the final couple of hours to a -1.1% loss. The monthly employment report was strong though wage growth was flat. That modestly good news was overshadowed by the ex-U.S. concerns and offered little solace to battered markets.

Warm wishes and until next week.