After the mega tech reported earnings last Thursday, the market reacted negatively despite the earnings reports were not bad. The big tech continues to make money in the face of congressional scrutiny. Last Friday was the month end closing and the month end closing didn’t produce a sell or buy signal.
Despite the NASDAQ losing 2.45% last Friday, it ended up with an inside monthly bar, meaning the October trading range was inside the September’s trading range. An inside bar normally means indecision. The DOW made a new low in October, but the monthly close didn’t produce neither a sell nor a buy signal. October is a losing month and this could be the seasonal low if the market can rally from here. We believe there are internal conditions that will allow the market to rally to year end despite all the uncertainties connected with the election/virus outbreak/tension with China, etc..
Last Friday there were 11.60% of S&P 500 stocks closed above their perspective 10-day moving average. The VIX closed at 38.02, which spiked up 44% from the previous week’s close at 26.37. At the March 2020 low, there were only 4.39% of S&P 500 stocks closed above their perspective 10-day moving average. At the June 2020 low, there were 9.82% of S&P 500 stocks closed above their perspective 10-day moving average. Anytime when there are only about 10% S&P 500 stocks close above their perspective 10-day moving average, it is an extremely oversold condition and a bounce is imminent. So combined this extremely oversold condition with a spike in the VIX, we expect the market to bounce in the next few days or week.
The market participants have been overwhelmed by all the uncertainties, eventually all of the uncertainties get to be priced in and the money has to go some places, the treasuries are not paying any interest.
So we are leaning towards the idea that the market low could be in place already, if not it could be very soon. The market could rally to year end from this low.
Technically, on the DOW daily chart below, you could see that it has performed an equal swing ab and cd, the same amount of correction of -9.17% in equal time of 14 trading days. The 200-day moving average is the ultimate support. In order for the market be bullish, it has to stay above the 200-day moving average. It could violate the 200-day moving average, but cannot continuously close below it.
We blogged before about the solar sector ETF TAN. TAN actually broke out an 8-year range in August 2020. TAN made a low in November 2012 at 12.60, and a high at 51.07 in March 2014. Before August 2020, TAN has been trading between 12.60-51.07 in the last eight years. First Solar FSLR just broke out its last eight years trading range in October by smashing the earnings report. During last week’s correction, FSLR traded very strong relative to the general market.
Solar stocks were in bubble terriotry in 2008 when U.S. light crude surpassed $100 per barrel. The solar bubble busted along with oil bubble. In the past, the cost of Solar was very high, Solar could only compete when the oil price was very high. As soon as the oil price dropped, solar lost its advantage. That’s why it took more than a decade for the solar sector to breakout. During the stock bottoming process, the solar companies have improved technology and lower the cost. That’s why today solar can compete when the oil price is so low.
We recommend our subscribers to get long with either TAN or FSLR during the correction. The solar sector could be forecasting that Biden will win since Biden has proposed a $2 trillion green plan. Even if Trump wins, Solar sector will continue to perform, it could be at a little slower pace though.