A Good Start To 2021: Weekly Nifty 9 Charts In Focus

Welcome to another trading week!! In appreciation of all of our daily readers, we offer the following excerpts from our Weekly Research Report. Our weekly report is extremely detailed and has proven to help guide investors and traders during all types of market conditions with thoughtful insights and analysis, graphs, studies, and historical data/analogues. Have a great trading week, be in touch, and take a look at some of the materials in this weekend’s published Research Report!

Research Report Insight #1

Investors should bear in mind, however, that seasonal trends do not favor stocks in the back half of January. Weakness has historically accelerated just after mid-month, around the eleventh trading day. (chart below)

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Is the weakness due to earnings season or the general buyer’s exhaustion that typically coincides with the end of the Santa Claus rally? Nobody knows for sure but knowing the seasonal trends aids with level-setting investor expectations. What lay ahead in the coming week/s is less important than what has been accomplished in the previous months and what remains to be accomplished in the months ahead. 

Research Report Insight #2

The S&P 500 has been in an unrelenting uptrend the last several months, and it has been noted that when the Equity Put/Call ratio is as low as it has been in the past, there is usually some consolidation of the market’s gains. In 2020 when the Equity Put/Call ratio has dropped below 0.4, the S&P 500 has always fallen or given gains back as outlined in the examples below: (This table was created on Dec. 18, 2020, the market fell 1% three days later: (@Ukarlewitz))

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With the data at hand, however, it should be noted that the super-low put/call ratios of today, which mirror the 1995-1999 period, are being driven by surging call activity, not collapsing put activity. CBOE equity put volume is 20% above year-ago levels, but call volume is up nearly 60 percent. So traders are still buying “protection/puts”, but those puts are muted by the tremendous surge in call option buying activity. (put/call activity below)

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Research Report Insight #3

When I looked at S&P 500 New Highs minus New Lows surging above 100, I recognized that this identified and validated the uptrend, but it can prove to produce an environment whereby overbought conditions relax a bit in the near-term. Such strong market breadth also finds price becomes increasingly sensitive to headline risk.

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As shown in the screenshot above, I’ve circled every year since 2016 (7 time periods in total) whereby the NH-NLs got above 100.

  • Twice it marked significant interim tops (2018, 2020).
  • In June of 2020, it also marked an interim top and 8% consolidation that lasted about a week in June.
  • Other times in 2016, 2017, 2019 the market just trended higher with only minor disruptions of trend (5% pullback or less).

Another breadth indicator is showing signs of excess strength, the percentage of stocks trading above their 10-DMA.

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