Published October 2, 2020
This week, our focus Nasdaq 100 (QQQ) appeared to resume the uptrend that was halted through much of September. Let’s examine the chart below to see how this market correction played out. The square around the price bars, and also around the volume bars, show the market selloff (declining prices in heavy volume). The -14% price decline from the selloff basically negated the sharp August runup, a runup which had most market watchers concerned about the “froth” in market valuation.
The QQQ had its first brush with a new uptrend where our green arrow is drawn below. On that day, the index jumped back above its moving average lines and looked ready to try to push higher. It was the third consecutive day of gains in higher volume (circled below). A couple of hesitant days followed before the index pushed higher again. With the QQQ having pushed upward out of the blue box and above the $280 price level, many investors feel the correction is over. Often, the initial buy signal after a correction is a false start. If so, that usually occurs quickly, and may have even happened Friday as stocks tumbled. The next week will be key for confirming this new uptrend.
Each uptrend boasts powerful leaders driving the advance. Software and consumer discretionary have been consistent leaders, and they are present again this time.
The pandemic appears to have altered housing in a positive way, with many work-from-home consumers leveraging ultra-low interest rates to buy new houses.
Further supporting the home construction/building sector is a surge in remodeling, again as people are spending more time at home. This has perhaps fueled a boom in solar energy as that sector takes flight.
Compare the success of these leading sectors with the chart of financials shown at the bottom of this group. It is a choppy mess. Financials, like most other sectors of the market, have yet to show signs of a new uptrend. If they can join in, the final quarter of this wild and historic year will be a strong one for stocks.
After four straight weeks of losses for the S&P 500, thus a losing month of September, stocks began this week trying to recover some of that weakness. A +1.6% gain Monday added to Friday’s lift to give the market index its first notable back-to-back wins in three months. Lagging sectors, energy and financials, led the way in Monday’s bounce. A -0.5% slip Tuesday as participants focused on rising coronavirus numbers and limited chance of a new stimulus package before the November election. Stocks closed September, and a solid second quarter, with +0.7% gains Wednesday. That was followed by a +0.5% rise Thursday on optimism for economic recovery over the coming several months. Consumer spending has slowed as the effects of the summer government stimulus payments have dwindled. But many economic readings continue to show modest growth. Stocks tumbled Friday on news of President Trump’s positive covid-19 test. The fresh uncertainty hit growth sectors harder than others. Treasury yields rose on the day, reflecting no real panic on the day’s news, which in turn lifted financial shares. Energy shares, down heavy at the open, reversed course to post gains. Retailers and homebuilders continued to show strength. Also a factor Friday was the monthly jobs report, which came in a bit under expectations, perhaps encouraging investors that a stimulus deal will get done sooner. Small and midcap shares rose on the day.
The burst of buying to begin the week held up despite the back-and-forth trading later in the week. The S&P 500 (SPY) held a +1.55% gain. The Nasdaq 100 (QQQ) posted a +1.01% advance. Small-cap shares (IWM) soared to a +4.40% to recoup the prior week’s decline.
Warm wishes and until next week.