A Case of the Mondays on the Market

Let's break down how the past week played out, and see what's likely ahead.

Author:
Helene Meisler
Publish date:
Nov 17, 2020 6:00 AM EST

Last Monday, the big-cap tech stocks didn't just sit out the rally, they went down.

A day later, the big-cap tech stocks went down again. Both days, the value stocks rallied or at least held their own. On Wednesday, big-cap tech got to rally, when value stocks sat by idly.

Thursday, however, was what I would call a Transition Day. Everything went down, but, as I noted, stocks of both groups went down with no oomph, as the selling dried up almost immediately. Then, on Friday, while we were back to value stocks going up, big-cap tech did not go down. Rather, big-cap tech sat there like wallflowers at a high school dance. All the popular stocks were dancing and they were sitting around waiting to be asked to dance.

It turns out that action repeated itself again on Monday. Monday was not a repeat of last Monday, because tech stocks didn't get sold. They just didn't get invited to dance with the popular stocks. That's why I say Thursday was a Transition Day, as the selling in big-cap tech stocks stopped, but there has been very little buying interest.

What else was different about Monday?

Last week we saw that big spike in stocks making new highs. This week, with the exception of a few groups, they were not able to get over last week's highs. That's why the number of stocks making new highs was about half of what it was last week.

When it comes to spike highs and spike lows, I see them as short-term resistance or support. I don't think they have much implication over the intermediate or longer term. That means typically a revisit to a spike high (or low) will stop in that neighborhood again, as those who traded there are relieved to get back to even. That's why the new highs are so few compared to last week.

The tendency will be for a digestion or correction period as folks are reticent to pay up past the spike high, unless there is a gap up over it we tend to see "work" being done in the area. Can the market keep going and the baton get tossed back to the big-cap tech stocks for a day or two? Sure, because that would keep the either/or market alive.

In the meantime, breadth remains strong, but sentiment is growing confident on the bullish side as well. The CNN Fear and Greed Index was 24 on election day. Now, it stands at 69. The Daily Sentiment Index (DSI) for the S&P 500 is now at 81. I suppose because the Volatility Index didn't go down during Monday's rally, its DSI stayed at 12. As a reminder, readings under 10 or over 90 are signs it has been stretched too far.

I still think we get an overbought pullback this week.