The latest job data released on last Friday was soft, not so great, but also not so gloomy which is good for the market because it could push the Fed’s tapering further down the road, at least that is what the market was thinking at the moment. Yes, the soft data is indicating the economy is slowing down due to a number of reasons such as the Delta variant, supply chain and inventory issues, etc.. The slowly grinding higher DOW is reflecting the soft and tired economy, yet the NASDAQ is thinking the sky is blue.
Is the sky is really that blue? We don’t think so. The mega tech stocks count for 40% of the NASDAQ. The NASDAQ rally is defensive in nature, investors are risk averse and hiding in the mega techs for shelter. This is a breadth indicator for a near term top, meaning the rally in NASDAQ is lacking broad participation.
Because the DOW is reflecting the soft real economy and the NASDAQ is the new blue chip reflecting safety and growth, these two indices present different cycle counts.
Below are the DOW and NASDAQ weekly and daily charts.
The DOW is 11 weeks into the current weekly that started on 06/21/2021. It would be 14th weekly bar by the next FMOC meeting, which is in the top timing band in a bullish weekly cycle. The next FMOC meeting start on 09/21/2021.
The NASDAQ is only 2 weeks into the new weekly cycle that started on 08/20/2021. It would be the 5th weekly bar by the next FMOC meeting, which is in the top timing band in a bearish weekly cycle. In a bearish cycle, 50% chance for a top to occur on the 5th bar, 70% chance for a top to occur on the 2nd bar.
If the market indeed turns down around the FMOC meeting, it would be very bearish for the NASDAQ and the market in general.
In the NASDAQ daily chart, it would be the 22nd daily bar by the next FMOC meeting. It is not unusual for this daily cycle to stretch the topping phase into the FMOC meeting. The halfway between the NASDAQ yearly resistance1 and resistance2 is around 16,000. Based on the current price and time left in the daily cycle, it is possible for the NASDAQ to attempt 16,000 while waiting for the FMOC meeting.
We are not putting any new money to work at this point. All we do now is waiting to sell covered calls against our holdings. PLTR has resistance around 27.50. We are planning to sell 27 or 30 strike price November calls against our holding. PLTR is very liquid and has tight spread in bid and ask in options trading.