Stocks Drop Sharply On January 4 With Perhaps More To Come

Stocks had a weak day, with both the S&P 500 and the Qs falling by around 1.5%. Perhaps there was merely some de-risking ahead of the run-off election in Georgia tomorrow, or perhaps the market is merely unwinding from very overbought conditions.

I was looking for a move lower last week, with a push back to 3,700, which is where we closed today. But intraday, it was steeper than that, with the index falling to as low as 3,662. 

A pullback to 3,550 would not be surprising to start with; it would mark a 38% retracement of the November election move up. Could it be worse, sure? I have been through several scenarios that point to lower levels. But we need to take it one step at a time. We have seen too many of these one days sell-offs quickly turnaround.

It is not that I am trying to be pessimistic. Stocks rise and fall, and when stocks get too overbought, they need to correct and cool-off. It allows for normal functioning. Markets that overheat are no good because they tend to overcorrect.

VIX

The VIX quickly rose to around 29 before settling around 27.

10-Year

If there was a hint of de-risking today, it certainly was not in the bond market, with the 10-year basically unchanged.

Gold (GLD)

Gold appears to be finally breaking out of the bull flag pattern. Perhaps it the safe-haven asset class; perhaps it is not. Either way, the chart looks bullish, and I think it goes higher, towards $2,300 over the next few months. 

Amazon (AMZN)

Amazon fell by more than 2% today, and tomorrow is a potentially big day for the stock. If it drops below $3,100, it likely means that lower prices lie ahead and that my $2,850 target is still in play.

Roku (ROKU)

If the RSI on ROKU drops below 50, it will signal a very bearish change in the stock’s trend, and not for the better.

Gamestop (GME)

Another painful day for Gamestop, falling more than 8%. Unfortunately, it may not even be done falling, with an RSI only at 51. It needs to fall below 30 before hitting oversold levels. A drop to $15.50 is still alive; even though I originally wrote in my story, I thought it could fall to $17.25 on a technical basis, which is where it closed today. The other side of a CONVEXITY squeeze can be a real hangover. 

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Disclosure: Mott Capital Management, LLC is a registered investment adviser. Information ...

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