Market Commentary for September 2020

"Still accelerating..."

By Alan Hull

This commentary is in part or entirely created using extracts and comments from my weekly Blue Chip Report. For more information about the Blue Chip Report, including subscription details and a recent sample report, go to Blue Chip Report

The technology heavy NASDAQ 100 index has ended the month of August on an all time high. And this means it is still accelerating on a month by month basis. This is a bubble and it's obvious. That's the funny thing about bubbles...the crowd has reached the point where the bizarre is seen as normal. But I can assure you, the following chart of the NASDAQ 100 index is far from normal...

This is a classic blow-off pattern and it is a signal to sell....not to buy. The NASDAQ may continue its meteoric rise for a while longer but at an increase of 10% per month, it is obviously unsustainable. The other issue right now is that the broader U.S. market (the NASDAQ & the NYSE combined) has reached a key resistance level. And it's one you may recall from February when the SP-500 index reached it last time....

This is the SP-500's long term speed resistance fan and the SP-500 has now touched its upper boundary again. So it is highly probable the U.S. markets will at least pause at these levels...while there is an increased probability this may be a turning point. Now I could go into all the fundamental indicators but I've done plenty of that in recent months and the story in charts is compelling enough by itself.

Hence this is a highly focussed bubble given that the New York Stock Exchange (NYSE) doesn't share the NASDAQ's current enthusiasm. This is evident when looking at the Dow Jones index which is made up exclusively from stocks listed on the NYSE. And, unlike the NASDAQ, the Dow Jones index has only just reached it's previous high....

This is a 'Tech' bubble that's been exacerbated by an increase in online commerce and a record increase in online trading...thanks largely to the global pandemic. Of course it has also fuelled by stimulus, the likes of which the world has never seen. It's just a great pity that our local market (and other major world markets) isn't seeing any of this action. Here is our local ASX200 index, which has been trading pretty much sideways for the past 3 months and no where near its previous high....

What's more, at the time of writing this article the ASX200 is down over 2% on the first day of September. This is not a good sign as we appear to be breaking out to the downside after a prolonged period of consolidation. So weighing up risk versus reward, our market isn't a very rewarding place to be right now and we appear to be standing in the shadow of a tall building that's about to collapse on us. So I think it's a pretty fair assessment to say the reward doesn't justify the risk.

That said, we have made some hay during the past few months using aggressive trading tactics in my short term strategies such as ActTrade, Breakout Trading and ALANHULL TV. But over the longer term I have been anticipating a reversal by hedging my long term holdings and slowly building a short selling position over the NASDAQ bubble using inverse ETFs. These are bear market trading tactics and no doubt they will be the mainstay of my 2021 course.