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Market Analysis For Week of November 29, 2021 [Premium Articles]

Market analysis for week of November 22, 2021. The analysis focuses on major market indexes, ETFs, commodities and forex. Access to full article requires Premium Articles subscription or All in One subscription.

Report contents

  1. Weekly summary and recap.
  2. Analysis of major indexes.
  3. Popular ETFs.
  4. Commodity ETFs.
  5. Spot currency pairs.
  6. Markets to Watch.

1. Weekly summary and recap

  • U.S. stocks were sharply down for the week.
  • High beta large caps and small caps sold off.
  • Bond prices were higher and yields fell.
  • Commodities were sharply lower for the week.
  • Gold fell and crude oil plunged amid panic selling.
  • The U.S. dollar index gained for a fifth week in a row.

Recap (November 22, 2021 – November 26, 2021)

Large caps ($SPX) fell 2.2% and tech stocks ($NDX) dropped 3.3%. The Dow 30 ($DJI) shed 2%. Small caps ($RUT) dipped 4.8%. High beta large caps ($SP5HBI) lost 3.9%. US Treasury Bond prices ($SPBDUSBT) rallied and yields fell. Crude oil futures (&CL) for January Delivery tumbled by 10.2%. Gold (@GC, London PM Fix) lost 3.2% while the U.S. dollar index ($USDX) inched up 0.1% despite a 0.9% drop on last day of the week. The CRB index ($CRB) fell 3.5% primarily due to crude oil losses. Year-to-date crude oil is up 40.5% followed by high beta large caps with 35.4% gain. Gold is down 4.8% year-to-date followed by Treasury Bond Total Return at -1.7%. Crude oil is now oversold.

2. Analysis of major indexes

The S&P 500 index fell 2.2% to close at 4594.62 for the week.

The S&P 500 index weekly drop was the fourth largest for the year.

As it is the case with all market sell-offs, the financial media but also many traders in social media attempted to offer “explanations”. The true drivers of a sell-off cannot be known and those that are usually offered as explanations may be what market participants in the past labeled “excuses.” Cause and effect cannot be established in the markets with high certainty because the objectives and motives of market participants, especially those with significant impact, cannot be known. The simplest explanation is that the market was highly overbought, as discussed in last week’s weekly report, and as a result, it was already preconditioned for a sell-off. Last week I included a chart of new 52-week lows in NASDAQ composite stocks at NASDAQ-100 new all-time highs and noted the extremes outlier.

In reference to the above chart, last week I wrote:

On Thursday, November 18, 2021, there was a record of 409 new lows in NASDAQ Composite while NASDAQ-100 made new, all-time highs. Note that in the past, high values of this indicator even above 100 new 52-week lows at new all-time highs of the NASDAQ-100 index have on several occasions preceded a correction and even a bear market in 2007. However, causality cannot be established by this sample alone. On the other hand, there was an outlier this week that is extreme. Probably a correction will follow.

Even under extreme overbought conditions, the market can push higher after a small correction.  Extreme outliers are useful for reducing exposure or establishing hedges but cannot forecast direction with high confidence because causality, or even association, cannot be established.

A few traders are expecting continuation of the down move on Monday due to the broad sell-off on Friday. It’s possible but the outcome is probably random with a small edge in favor of a rebound. Below is a backtest using SPY ETF daily data for shorting at the close of Friday if there is a drop of more than 2% for the day and covering at the close of Monday.

There are 64 trades, the win rate is 39% and CAR is -0.6%. Therefore, this is close to random result for this limited sample. There is an upward drift in the market that always skews results in favor of a rebound about 60% of the time.

There are two indicators that may provide some clues about the direction of the stock market in the next few weeks, as shown in the chart below.

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Specific disclaimer: This report includes charts that may reference price target levels determined by technical and/or quantitative analysis. No updates to charts will be provided if market condition changes occur that affect the levels on the charts and/or any analysis based on them. All charts in this report are for informational purposes only. See the disclaimer for more information.

Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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