Daily Market News - 15th Dec 2021

Should We Buy The Dip?

It’s good to be back after my 2 week vacation to the US, and while I’ve been working remotely, the market hasn’t quite gone to plan for growth tech has it?

I’ve enjoyed that southern hospitality very much, the market though… not so much.

During the time I’ve been away, we’ve seen a large % of the NYSE names put in a correction… we’ve had a flash crash in crypto… hindsight tells us it’s not been a great time to be “passive” with managing risk or getting emotionally attached to company stories.

Inflation, Omicron, The Fed, It’s a scam…. I’ve heard it all… but really, it comes down to risk management. It usually always does.

I’ve got a few charts I want to present today, not because I have a particularly high conviction in anything when it comes to individual names (my high conviction alerts have dried up these last few weeks), but rather to show how I use Technical Analysis in these types of situations and how I’ve been communicating with my clients and members over the last 2 weeks.

Consumer Discretionary v Staples Ratio Chart

Back in October when this ratio was breaking out, it formed a large part of my bullish thesis when the market was being asked very tough questions at the time, now more than ever, I want to pay attention to this chart as it gives me the cheat code to risk on/off sentiment… if discretionary is UNDER performing staples (defensive sector), the market probably isn’t making new highs any time soon. That’s key information in my world.

Russell 2000 Small Caps (IWM)

The small caps put in a massive failed break out a month ago (I pointed it out on the 19th Nov), since then, market breadth has fallen off a cliff and my work has shifted to a focus on quality names with a very risk off tone for growth.

Small Cap Growth (IWO)

As we can see, we’re at a big support level for Small Cap Growth and the bulls amongst us are hoping we can bounce from current levels (with many individual names MASSIVELY over sold on RSI).

The names with high P/E Ratios have been absolutely crushed as the market is pushing down some insanely high valuations. While I’m definitely not considered a Fundamental guy, I have learned over the years that buying the dip on high P/E’s can be a recipe for being skinned alive… my views haven’t changed on that in the last few weeks.

What happens if Growth breaks down again? Or is it going to rebound spectacularly?

S&P500 ETF (SPY)

To the other side of it, 3 trading days ago we went out at a closing ATH in the S&P500, and while there’s carnage under the surface, it doesn’t escape those who do it professionally that if the market is making new ATH’s, there ARE stocks going up, and it’s just a question of owning those names, and NOT owning the stocks going down.

I get we all have different Investment styles (as we all should)… some of you will be dollar cost averaging on declines, some of you will be holding through 30-40% drawdowns and some of you will be well positioned and cash heavy, My preferred approach is buying uptrends and owning strong names. Here’s a few recent charts I’ve put out to our clients.

Apple (AAPL) Chart

Broadcom (AVGO) Chart

Both of these names won’t surprise you, who doesn’t own AAPL in 1 way or another, but sometimes it pays to understand what’s going up and to not over complicate things.

If you missed my work on Payment Processing Companies on 23rd November calling for a bottom - FOUND HERE - this looks to be playing out quite well at the moment so might be worth checking out also, but given there are many areas of the market already in correction mode whilst the mega caps prop up the indices, the questions I’m asking today is what if the mega caps fall off a cliff, what will that mean for the market?

Whatever your approach, nimble footwork just now isn’t a bad thing.

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