Stocks had another very busy week following last week’s volatile pullback which we forecasted, with the Nasdaq and treasury yields causing turmoil on Wall Street yet again. The 1.5% level in the 10-year yield briefly stopped the bleeding, but the positive vaccine-related news made investors revise their already bullish economic outlook upward, which increased the selling pressure on treasuries. Tech stocks suffered significant losses despite Monday’s broad-based surge, and even the relatively strong cyclical sectors turned lower in the latter part of the week. The negotiations regarding the details of President Biden’s stimulus proposal also heated up, with the reduced eligibility for the $1,400 direct payments being the most important change compared to the original plan.
The short-term technical picture shifted rapidly this week with the S&P 500, the Dow, and the Nasdaq all dipping below their 50-day moving averages, but the benchmarks are still well clear of their 200-day moving averages. Small-caps plunged lower together with the broader market, and the Russell 2000 broke its 50-day moving average for the first time since the first days of November, but it still closed above both its long-term moving averages. The Volatility Index (VIX) exploded higher again, hitting a more than one-month high near 32 on Thursday, before closing in the red at 27.5. Markets witnessed the greatest trading rescue in over a year Friday with a flurry of buying coming in the last few hours of the session. The Fed has a March meeting mid-month, so expect markets to short term bottom (most likely have already) and be supported into the upcoming meeting March 17th.
The second round of the Reddit-fueled short squeeze quickly fizzled out, with stocks like GameStop (GME) and Rocket (RKT) giving up most of their gains this week. Short interest is currently very low on Wall Street from a historical perspective. Continental Resources (CLR) hit another recovery high this week at $32, getting close to erasing its COVID-related losses, with the stock’s short interest still standing at 24% – a trading opportunity we recently identified at the Forecast under $19. We will have more trading opportunities like CLR in the near future so stay tuned.