03Sep10:11 amEST

Here's How to Tell When the Music Crudely Stops

I am on a scheduled (and exceedingly rare) vacation through Labor Day. So, posting will be rather light until after the holiday. 

However, it is worth analyzing this morning's long overdue Nasdaq softness. No, tech is not crashing. And, yes, aggressive, exuberant bulls captured a uniquely strong uptrend the midst of, for example, New York City still being in worse economic shape than the Great Depression (See: Broadway shows, indoor restaurants and bars all dark). 

So, where to from here? 

The last few weeks have seen me mostly waiting out this move as I wanted to gauge the first bout of real Nasdaq weakness to objectively assess what type of underlying market we are dealing with, as the tide goes out temporarily, to paraphrase Warren Buffett. 

As I write this, energy, banks, and the re-opening plays like cruise lines CCL NCLH are hot, while DOCU TSLA ZM, and many others, are finally blinking in the QQQ. 

Nasdaq dip-buyers have enjoyed so much success that you cannot be shocked if they keep trying here. The test to see whether the music stops will be: 1) Intraday dip-buys fail to yield yet another in a long line of V-shaped moves back to session highs, or lower intraday highs even, 2) A close at or near session lows, for a change. And likely, 3) Sizable follow-through lower in the coming trading sessions (which may also happen after Labor Day, even if it is meant to be), which effectively traps in all of the recent buyers at these highs. 

That is the likely formula, at least. What we do not know yet if it is in the cards for bears, although the Dollar and VIX have been firming up the last few sessions as divergences. 

Finally, on the issue of rotation to financials and energy, in lieu of a broad market correction (perhaps mostly relegated to extended tech), the flip side of the above blueprint hold true: We want to see banks/energy make higher lows intraday, close at or near session highs, and follow-through higher in the coming days to signal that this time is indicative of something more substantive being afoot. 

Stock Market Recap 09/01/20 ... The Chart No One is Talking ...

 
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