In our last Sunday blog, we mentioned that the NASDAQ would attempt 16000 in the next 4-6 weeks after it bounced sharply from 14200 support.  TSLA reported earnings last Monday and the stock price chose not to respond to more than a tenfold increase on the $104 million the company reported in the same period last year.

Instead, the market participants zeroed in on chip shortage and battery issues.  If TSLA was in a bullish trend, the stock price would jump 10-20% to celebrate its super earnings power.  In other words, the animal spirit is nowhere to be found in TSLA stock right now.

Apple and Microsoft reported great earnings and their stock prices didn’t respond either.  AMZN missed earnings and was punished.  The AMZN breakout chart is invalid now.

At the moment, the NASDAQ breakout chart is still valid because it is still above the support level at 14200.  The current stock prices are high relative to earnings and history, but not irrational.  The stock market is not in bubble territory.

All asset prices are tied to interest rates.  When the interest rates are so low, all asset prices will be high and the returns are hard to come by, which in turn fosters risky behaviors in the market places.  We have seen the SPACs and Meme stocks trading at unreasonable levels earlier this year and they have been rightfully corrected.

The Chinese government crackdown on DIDI and other tech companies is NOT finished.  The furor unleashed to the world by the Chinese government has consequences.  No one with a sane mind would subject themselves to this kind of unstable investing environment.  The Chinese government is choosing power, i.e. self interest above all.  Anyone who is not obeying the Chinese government dictatorship will be punished accordingly.  The Chinese A share index topped in February 2021 and is still in correction.  The US stock market is the last man standing.

Six large-cap technology companies account for a dominating 20% of the index value by market capitalization. With AMZN down in a big way after Q2 earnings report, the indices will have a hard time to march on without AMZN’s participation.  The Delta variant will put the re-opening stocks’ rally at risk.  The re-opening stocks topped in May/June before the Delta variant was a concern to the stock market.  It seems almost impossible for the re-opening stocks to rally without a reset in valuation first in the face of the raging Delta variant.

All in the all, we believe the conditions (highly valued stock market with narrowing breadth+ uncertainties with the Delta variant + geopolitical issues + fiscal debt ceiling issues) are ripe for the stock market to pull back 10-15% in the second half of 2021.  It is time to keep your powder dry, the risk reward is not there for us to put new money to work at this time.

We doubt the NASDAQ is capable of rallying to 16000 in the next 4-6 weeks with AMZN falling out of the pack.  But we are open minded as long as the NASDAQ stays above 14200.

We will buy puts when the NASDAQ falls below 14200 with velocity.  The downside velocity will be present when there are significant fundamental events such as Fed policy change and or the Delta variant causing big problems, etc..  The market will be meandering if nothing happens.

Below is the NASDAQ weekly chart.  Nothing changed as long as it stays above 14200.