Last Monday the market made a capitulation low because in the following three trading days the shorts failed to take out the Monday low despite trying very hard in doing so. Following Apple’s earnings release on Thursday after the market close, the shorts finally gave up and the longs reversed the downside energy on Friday.
It was the first time that S&P 500 closed below its 200-day moving average since it came out of the deep pandemic correction territory. Now the momentum on the weekly charts is clearly geared down uniformly on all major indices. It has only been two weeks correction for the S&P 500 even though the NASDAQ has been in correction since November 2021.
Innovation focused ARKK ETF had a great year in 2020 that outperformed the indices by a very wild margin. The chief investment officer Cathie Wood was hailed as the best fund manager of the year. 2021 was a very bad year for ARK funds and 2022 continues to be a very bad year as the macro conditions have turned against ARKK type of hyper growth stocks.
The rapid rise of the 10-year treasury yield has sent the NASDAQ and hyper growth stocks into a tailspin. The talk on the street has been inflation and rate hikes. The inflation fear has been so thick that the hyper growth stocks have been in a very deeply oversold condition as if those companies would go out of business tomorrow.
The first week trading of 2022 has been full of sparks! The energy sector ETF XLE rallied 10.52% last week as the markets looked past Omicron induced travel headaches. The financials XLF ETF rallied 5.43% last week as the markets looked for higher yields to help banks making more profits. At the same time, the NASDAQ lost 4.53% last week as money is finally rotating out of the mega tech stocks. The best performing chip stock NVDA lost 7.36% last week.
