“Evidence Mounts For Hedge Fund Theory & FOMO Driving Stocks Higher?”

“Evidence Mounts For Hedge Fund Theory & FOMO Driving Stocks Higher?”

[vc_row][vc_column][vc_column_text]I have been writing about the unusual activity (carnage was more accurate description) in December. The premise I laid out the first week of the year was a significant number of hedge fund closures in the fourth quarter produced a collective rush to sell. The ensuing  cascade overwhelmed the normally light trading holidays creating what most though a potentially ominous market message. I disagree and essentially my stance is the last leg of the sell off was an anomaly.

Here is some evidence supporting the crowded theater hedge fund theory –

  1. Clean looking Nov bottoming pattern failed for the first time in 10 years
  2. No typical day of capitulation (throw the towel and kitchen sink in)
  3. Apple devastating preannouncement shrugged off immediately
  4. Usual suspect pundits have not talked about theory
  5. A blistering rally creating a V bottom

Those were up until Thursday last week. That afternoon Intel followed Apple and released awful results for Q4 taking the stock down nearly 10% in the aftermarket. The same  day the Emerging Markets had collectively formed a number of negative divergences which I took a short position on. Later that night China, Hong Kong, Korea, Taiwan, and Japan (not an EM) all opened strongly to the upside and never looked back. This forced me to close the short EM position first thing Friday. Now we can add Intel and the Asian Indices to the list.

The most impressive of the Asian EM’s was the Hang Seng Index which gapped open and closed on its highs (very bullish signs). It also took out the November highs as did the South Korean Kospi. This definitely leaves room for some open field running which Todd Gurley will be  looking for as well. Go Rams. [/vc_column_text][vc_single_image image=”842″ alignment=”center”][vc_column_text] 

It was not just Asia behaving well as Germany, France, Australia, Canada, Portugal, Argentina, Spain, Netherlands, and Sweden all made new 2019 highs. No country can top the  Brazil Bovespa as it made an ALL TIME HIGH Friday on new gov’t optimism. That collectivity led the Dow Jones Global Index to a new ’19 high as well. Again very bullish. [/vc_column_text][vc_single_image image=”837″ alignment=”center”][vc_column_text]Most US Indices were still attempting to recover from a rough Monday with the Dow Industrials the lone new high Friday. One sector did happen to explode, the semiconductors (SOX), even with the anchor of Intel. I have written several times before how the Semi’s lead on the upside and downside. They topped in March while most others topped in October. The sector is up nearly 20% from the Christmas Eve low. Also very bullish!

The double top negative divergence that the EM’s blew through Friday have now afflicted the majority of domestic indices/sectors. Can they produce a similar breakthrough act? I normally would short a pattern like the one below (proved that  Thurs) of the S&P 500, but not with this breadth and depth of buyers (and Thurs experience).[/vc_column_text][vc_single_image image=”838″ alignment=”center”][vc_column_text]One last chart to support the hedge fund on the grass-y (new pun) knoll theory is that of  the Marijuana ETF MJ. I postulated last week this group (not officially a sector) is leading the broader market with a very constructive pattern. They continue  their stair step to heaven with a break out of the flag pattern to new highs (old pun). Now we can add MJ and the SOX to the list. [/vc_column_text][vc_single_image image=”841″ alignment=”center”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Lots of evidence stocks want to continue their march higher being pulled by the SOX and MJ? The keys this week are follow through with both these groups and new 2019 highs for all major US indices. My guess is it will happen sooner or later as the sideline money experiences more and more FOMO (Fear of missing out). At this point the hedge fund theory is moot as higher prices are highly probable. If the holiday market message is ominous, we will deal with that later.

Final Thought –
“You can’t learn what you think you already know” – Some Smart Guy/Girl

More later,
Max Power

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Disclaimer: Remember everything I said could be wrong, the market always has the last word.

 

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