Hairpin Turns: Market in a Frenzy!

The Dow Jones rose last week by almost 3%, the S&P 500 climbing 1.5%, but what stood out more than anything else was that it was the most volatile week of the year! Despite the sharp index gains, the NASDAQ took a hit, falling 1.1%. The large indexes don’t really relay a full picture of the nuts and bolts of the market and if you only look at the dry performance on the Dow or the S&P 500, you’ll be left in the dark about what really unfolded in the marketplace.

The big story was the sweeping rotation of funds from momentum stocks – which had led the market higher for most of the year – to the stocks that lagged behind, which are now seen as respectively cheaper. Energy, financial, retail and transportation stocks were the big winners last week, FAANG stocks, along with tech and chip stocks  badly beaten back. Facebook (FB), for example, in the absence of negative news, plummeted 4.2% – just like that! Netflix (NFLX) ended off 4.5%.

On the back of these sudden turns, we also saw one of the most bubble-like movements in many years in the digital currency markets, bitcoin and blockchain being prime examples. The heat reached its height on Wednesday, bitcoin opening with a surge to a new all-time high, only to rashly nosedive headfirst. It could only conjure up memories from the 2000 dot-come era, meaning that bitcoin’s sudden plunge on Wednesday couldn’t help but impact the aura in the market.

For most of the year, the market didn’t pay too much attention to politics, but that also changed last week. Headlines about progress in the Republican tax reform legislation set into motion a number of aggressive automatic algorithmic trades on Thursday.

The week’s grand finale came on Friday when General Michael Flynn confessed to having lied to the FBI. Flynn is now collaborating as a government witness. The anti-Trump camp popped open the champagne, the market going into tailspin, a selloff going into full force – the bears, though, only got to salivate over the prospect of a Trump impeachment for a mere hour. The indexes worked to mitigate the harm, “damage control” doing the trick, indexes ending only mildly down on the day.

The movement this last week was mesmerizing and the stage is certainly set for more drama this week. The tax bill is on track to make it through the Senate. Even though the Republicans are happy about their political victory, the actual number of fans the bill has among the populace in its current form is scant. While it’s given corporations a big sigh of relief, the reform doesn’t do all that much for the run of the mill taxpayer. Furthermore, there are legitimate concerns about how the reform will finance itself.

Technically, the conditions seem good for a price correction and many bears are thinking of “selling the news” on the tax reform bill. At times it seems like the recipe to trading this market is so clear and straightforward but it can’t be denied that our market is at oversold levels and needs a price reset, sooner or later.

Have a great trading week!