Despite being shortened by Thanksgiving on Thursday and a half-day on Friday, it will be a busy week. The big data point will come on Wednesday afternoon with the release of the November Fed minutes.
Based on comments from Richard Clarida this past Friday, it seems likely that there will be some discussion in the minutes about increasing the pace of the tapering process at the December meeting. Now, considering the Fed has already pre-announced the December tapering schedule, any changes to the speed will likely occur in January. But still, it will give the market something to think about between Wednesday and Dec. 15.
A faster taper should result in an even stronger dollar and tighter financial conditions, ultimately negative stocks. Whether that is felt right away on Wednesday is not the point; the implications look well beyond the end of this year. At this point, it seems like it is only a matter of when the market drops. (Premium content for download.)
1. Dollar
If the DXY moves above 96.30 this week, it will be well on its way to 97.70. Very few give me credit for my calls on the dollar or rates. Therefore I will give credit to myself. Good call on the dollar :). Very few, if anyone was looking for a stronger dollar, and a stronger dollar is what we now have.
2. High Yields - Junk ETF
The SPDR® Bloomberg Barclays High Yield Bond ETF (NYSE:JNK) shows the effects of some of those tighter conditions. The ETF is now sitting on a critical level of support of $108.09, with a break of that support triggering a much larger move down, potentially back to the March 2021 lows.
3. High Yields - iBoxx ETF
Over the past few days, we have seen the same thing in the iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG).
4. S&P 500 ETF
It may even be worse than that. Based on data from FINRA, every full day of trading since Nov. 9 shows the number of high yield bonds declining has been higher than the number of high yield bonds advancing. It speaks to just how severe the weakness in that part of the market is.
The high yield ETF has a positive correlation to the SPDR® S&P 500 (NYSE:SPY) overall, and if the HYG is breaking down, it may serve as a warning sign overall for the S&P 500.
5. S&P 500 Futures
I haven’t changed my wave count yet. Maybe I should, but I will give it one more day. I’m waiting for the market to force me to change the count, and to this point, it hasn’t forced my hand yet. The RSI is turning lower, the MACD has turned lower, and the advance-decline line has turned decidedly lower. These are negative indications, and all of it continues to support that move lower I have been looking for to 4,590.
6. Russell 2000 Index
Meanwhile, the big iShares Russell 2000 ETF (NYSE:IWM) breakout that everyone was excited about two weeks ago has failed miserably and is now in serious trouble. The index is currently trading below the March highs, with an RSI on the verge of breaking its uptrend, along with a MACD indicator that has turned firmly negative.
7. Amazon
Amazon.com (NASDAQ:AMZN) had a significant Intraday reversal on Friday after starting sharply higher and finishing sharply lower. Everything about this chart and company screams of danger. It seems the only positives around the company are its investment in Rivian Automotive (NASDAQ:RIVN), and if that’s the case, the rally is likely to fizzle as quickly as it is started.
The business fundamentals are not strong, with costs rising all around them, likely eating away at margins. The stock has been a range-bound, dead money investment for more than a year, and until something meaningful changes here, my opinion shall not change; dead money, it shall remain.
8. Meta Platforms (Formerly Facebook)
The Meta Platforms (NASDAQ:FB) inverse Head And Shoulders pattern may be the continuation type after all. As it would seem over the past week, a pennant pattern has now formed, which is likely to take the stock sub-$300.
If you want to play the Metaverse, Roblox (NYSE:RBLX) seems like the best option at this point. The kids love it. My kids get their allowance in Robux. Now Nike (NYSE:NKE) has a virtual presence on the platform as well. I bought this stock a few weeks back now for my portfolio, and I am as excited about this stock as I was about Netflix (NASDAQ:NFLX) and YouTube years ago; that is the type of influence it has on this younger generation.
9. Roku
Suddenly, the sell-side is seeing the same thing I have been saying about Roku (NASDAQ:ROKU) over the past 2 to 3 years. There is nothing special there. Even at $220, this stock is overvalued. At best, based on 2023 revenue estimates of $5 billion, it’s worth at best $150, and at worst, 35 times 2023 earnings estimates of $3.40 or $119.
Roku will eventually become the TiVo of this generation. If you don’t know what TiVo is, look it up. The charts even look similar, with those big double tops. The shareholder base hasn’t been very friendly over the years, so I wish them luck.
10. Chipolte Mexican Grill
It looks like Chipotle Mexican Grill (NYSE:CMG) is ready to make a move lower to fill the gap at $1575.
