The major indices rallied not stop in August, totally defied the potential seasonal pattern of August being the month of a summer high. The S&P 500 took out February 2020 high and formed a clean breakout. What’s transpired the last two months is a great sign for the intermediate term. However, a pullback is truly a matter of “when” not “if”.
The stimulus package didn’t arrive as expected. It didn’t matter. The S&P 500 and NASDAQ went to make a highest weekly close anyway. Inside the fabulous S&P 500 and NASDAQ all time highs, there are only 38% of the stocks went with the program to exceed the February 2020 high, 62% of the stocks are struggling and are significantly below the February 2020 high.
Last Friday we sent an intraday alert to take profits in FSLY long trade. The exit alert was based on the fact that the NASDAQ index has been weaker relative to the Dow and S&P 500 indices. NASDAQ has a readable daily cycle top. With the both chambers of Congress going home without a stimulus package signed, it could spark a painful pullback.
The stark difference between the NASDAQ and Russel 2000 index in the last four-year cycle (February 2016 – March 2020) is displaying the economical paradigm shift in plain sight. The last paradigm shift that is similar to today’s took place during the Great Depression. Back then, 40% of the economy was Agriculture.
Through the challenges imposed by the historic COVID-19 pandemic, the stock market has sorted out the winners and losers in the new digital economy. It has produced a list companies that can perform, or even perform better during the COVID-19 crisis when the economy was shut down forcefully.
