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.
The stock market indices closed strong at year end. The indices managed to pull a Santa Clause rally after a low was made on December 20th. But underneath the strong indices, the market is getting very defensive. Real Estate (XLRE)/Health care (XLV)/Staples (XLP)/Utilities (XLU) outperformed mega tech such as AAPL/MSFT/GOOGL in December. Mega tech had been the hiding place all year long in 2021 except in December.
There are only four triple witching Fridays in a year. Last Friday was one of the them and the market didn’t fail to prove triple witching Friday’s abnormal trading reputation. On a triple witching Friday, there is the simultaneous expiration (or rollover) of various futures and options contracts. Many U.S. stock index futures, stock index options, and stock options expire on these days.
The bounce from the recent selloff has been impressive. S&P 500 closed at a fresh all time high last Friday. However, under the hood, there are plenty of wrecked stocks lying around, totally beaten, no signs of life to be seen. This divergence is not bullish for the bounce, yet the divergence can last longer than anyone’s patience and wallet.
The market tanked on black Friday due to the emergence of Omicron variant out of South Africa. The market did a very anemic technical bounce on Monday 11/29/2021. Then out of left field, the Fed Chair Powell spoke about accelerated tapering pace due to the higher than expected inflation.
