The Ultimate Market update is your official source for a stock market update.
So, a lot is happening in the markets right now. Most notably is the Gamestop short squeeze. If you are trading Gamestop you might want to checkout my post about the situation and how to trade it. To summarize, the easy money is over and now a blood bath is underway. Mark my words, retail investors are going to get crushed. Get out now. No way Gamestop is worth $332 per share. Seriously.
No doubt there will be hearings into this fiasco. But, in the end, the retail investor will get the shaft, as usual. Likewise, it appears brokerages decided to restrict the “average Joe” from trading while hedge funds received preferential treatment. Still, the system saved the billionaires once again. In the minds of many people, the situation reeks of the 2008 financial crisis. Remember the TARP bail out and the big executive bonuses that followed.
More importantly, this distraction is setting up the bull market’s next leg higher.
F/X
Without delay let’s take a quick look at the f/x markets, including gold.
The US dollar index (DXY) tracks the dollar against a basket of major currencies and the Euro dominates the index making up 58%.
As an investor, most important is the downward trend. But, it appears the trend has now moved to a sideways consolidation.
But, what about gold? First, forget the correlation to the dollar. Total crap from a trading perspective. Sometimes the move together, other times they don’t. In my opinion, it’s a total waste of time to trade off of the correlation between gold and the dollar.
Honestly, gold looks like it’s stuck in a coma. On one hand this could be a good thing. On the positive side, an inflection point is building in the gold market. Indeed, this set up could lead to a break higher OR lower. That is so say, wait to see what happens before buying or selling.
Bonds
The Federal Reserve does not like where the bond market is heading. For one thing, chairman Jerome Powell is on record saying, “the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month.” Undeniably, this is not the direction interest rates are supposed to be headed. If interest rates keep rising the Federal Reserve will have to increase its quantitative easing program.
Without question the Federal Reserve has more than doubled its balance sheet over the past year. Don’t believe me, well here’s the data. In fact, the Fed’s balance sheet has increased by 128% over the past year.
With this in mind, any capital that finds its way into the bond market won’t stay for long. So long as bond yields are below the rate of inflation capital will flow into the stock market.
Stocks
The bull market continues. This past week fear crept into the market and ushered in a mini-correction. After three long months the S&P 500 stock index has retraced back to its 50 day moving average. Largely this is due to the volatility frenzy caused by novice retail investors piling into Gamestop and similar stocks.
That said, the technical setup of the S&P 500 is still bullish. Surprising to some, but a correction is a sign of a healthy bull market.
Conclusion
Certainly, I hope this stock market update helps keep this crazy world in perspective. All to often emotions take over and bad things happen. For instance, we sometimes get caught up in the GREED and the FEAR of missing out.
Undoubtedly, we are entering a phase where buying opportunities are popping up left and right. Surely, those with discipline and patience are getting ready to buy the dip.
Are you looking for a way to play Gamestop? If so, I posted an article this week and it can be found here.
Happy Trading!
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