US Market Update

Black Friday 2021 will be one to remember and not just because of the exceptional deals that day.... No, this Black Friday will be remembered among investors mainly as the worst trading day for the Dow Jones so far for the year 2021, with a loss of 2.5%. The previous "record" dates back to July 19 when the DOW closed 2.1% lower.

Investors are concerned about the new corona variant that has emerged in South Africa, the so-called Omicron variant, which could be a lot more contagious than the current Delta variant. The WHO has classified it as a 'variant of concern'. Panic on the stock markets ensued and the daily chart of the DIA clearly shows... Opened with a gap down and closed below a previous support level.

The question on every investor's mind is what consequences this will have in the coming week and months. Is this the first sign of a much greater decline in the stock markets or is it just another storm in a teacup? No one can predict, the only thing you can do is try to look at the facts that led to last Friday's decline in a rational and objective way.

And with the information now available, it seems likely that investors were mostly anticipating more bad news regarding the new variant last Friday. But that is premature to say the least... The only thing we know for sure is that the new variant is probably a lot more contagious. However, it is not known yet to what extent one becomes seriously ill or not from this new variant This missing information is crucial to be able to objectively assess its severity. The worst-case scenario is that in the coming days/weeks the Omicron variant turns out not only to be more contagious but also more aggressive in terms of its clinical picture and higher mortality rate. In that case, the likelihood that stock markets will come under even more pressure (and prices will fall quite a bit lower) is something we should keep in mind.

However, the knife cuts both ways. If the initial studies show that the symptoms are less aggressive then the higher infection rate could even be interpreted positively because a higher group immunity (with less severe symptoms) is achieved more quickly. In that case, we may as well be facing a strong stock market recovery and new euphoria in the coming weeks.

Here are the weekly charts of the US Index ETFs

DIA

As spectacular as the decline looks on the daily chart, it is at least a lot less impressive on the weekly chart. The trend is still positive. However, the price has fallen back below its breakout level over the past week.

QQQ

A bearish engulfing weekly candle but price is still trading above the previous breakout level (horizontal blue line). Long-term trend still remains firmly positive.

SPY

A similar story for the SPY, down on a weekly basis but support around 454 remains valid for now.

IWM

The Russel 2000 has suffered the hardest hit with a weekly loss of more than 4%. The price has completely fallen through its previous breakout level and the long-term trend has changed from positive to neutral. The bottom of the trading range is at $210.

Summary

The long-term picture remains unchanged positive, only the russel 2000 is a bit out of place and shows some signs of weakness. But things can change very quickly in the current environment. We suspect that the communication regarding the further course of the Omicron variant in particular will have a significant impact on how the markets evolve in the coming days and weeks. In these circumstances it is important not to jump to conclusions. Keep in mind that prices can be a lot more volatile in the coming period and try to stay cool. After all, fear is a bad advisor!

Trade safe!

The ChartMill Team