After last week’s sell-off, people are understandably scared. But this might be the bottom for stocks (at least temporarily). As I’ll explain in more detail in the Technical Analysis section of this newsletter, there’s a chance that stocks could bounce here and hit new all time highs by the end of the year. While I remain long-term bearish, we do have the chance for a short-term rally through the end of the year, and we might even hit new all time highs about 4 weeks from now.
Also, keep your eyes out for an email from me on Friday. There’s a ton of Black Friday deals from top companies such as Trading View, Seeking Alpha, Ledger, and Stock Dads. I’m putting together a list of all the deals being offered, and I’ll send you the full list on Friday.
And don’t forget the markets are closed on Thursday, and only open for 4 hours in the morning on Friday. So it’s a 3.5 trading day week. Happy Thanksgiving to you and your family!
Market Recap
The stock market sell-off continued last week with the DOW and S&P 500 dropping nearly 2%, the NASDAQ falling 3%, and the Russell 2000 declining a little under 1%. Depending upon which stocks you’re holding, your portfolio might be down 1%, or it might be down 30%. The most speculative stocks are falling the hardest, while most stocks traded flat last week.
Some sectors such as AI and quantum computing have seen stock prices rise significantly higher than company valuations. And this is where investors need to understand and learn the difference between company valuations and stock prices. Just because a company is highly valued, doesn’t mean the stock price is fair. iPhones are great, but you would never pay $10,000 for one. Tesla cars are great, but you never pay $500,000 for one.
A lot of investors have forgotten that lately, and they’ve been over-paying for companies – in some cases by more than double what the company is worth. And now the sectors that were most out of line (AI and quantum computing) are starting to correct. That is, the stock prices are starting to correct themselves and get back in line with the company valuations. Some quantum computing stocks are down 50% already, while some AI stocks are down 20% or more.
And we’re not just seeing it with the stock market. We’re also seeing other highly speculative assets such as cryptocurrency correct too. Bitcoin is down 21% over the past 3 weeks and continues to fall. If you’ve been reading my newsletters for the past few weeks, and you took the opportunity to place the trades I suggested, you are probably making a ton of money from this sell-off. I’ve seen some people post their put option profits, and they’ve realized 1,000% gains in just a few short weeks. So congratulations to everyone who’s been reading the newsletter and following along.
Market Sentiment
I think it’s no surprise to anyone that market sentiment is in Extreme Fear. What is surprising though is the fact that the CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) hit a level of 6 last week. That’s one of the lowest readings ever, and only before seen during major bear markets. We’re not in a bear market yet, so this has caused a lot of fear among investors that the sell-off we’ve seen this month is just the beginning, and we might be looking at the sell-off continuing next year, with stocks possibly falling by as much as 50%.
To make matters worse, the VIX closed last week at 23.43. That’s the highest weekly close on the VIX since the March – May sell-off when the stock market fell by over 20%. And it’s the first bearish close (a close above 20 is bearish) in over a month. Just keep in mind that this doesn’t confirm the market will continue to sell-off. It just means that S&P 500 traders are buying a lot of put options in case the market continues to sell-off.
Technical Analysis
The daily charts continue to be 100% bearish on all 4 major indices. But I did see a little bit of hope on Friday. Friday’s candle formed a Bullish Harami candlestick pattern. Now by itself, this isn’t particularly important. A Bullish Harami only predicts a bullish reversal 53% of the time, which is basically no better than a coin flip.
But if Monday’s candle can close above the close on Thursday, then that will form a “three inside up” bullish reversal pattern, which is 65% accurate. Meaning, that if Monday’s close is higher than Thursday’s close, we have a 65% chance of the market rallying into year end, and possibly hitting new all time highs in about 4 weeks.
By the way, if you want a Candlestick Pattern Cheatsheet with each technical pattern’s success rate, you can get it here: https://shop.weprofit.io/products/candlestick-patterns-cheat-sheet.
The weekly charts have unfortunately confirmed their first sign of bearishness since the April – May correction. The weekly MACD has finally turned bearish on all 4 major indices. This could be the start of a bear market, but that’s speculative. The weekly charts are still 80% bullish, with only the MACD showing bearishness. So there’s still a good chance that this sell-off is temporary, and might have even bottomed out last week.
Unfortunately we don’t always see stocks bottom out at the 21 week EMA (often we do, but not always). Usually stocks bottom out at the 21 week EMA, but sometimes they bottom out at the 50 week EMA. And if that happens, we’re looking at another 7% drop in the stock market before we bottom out. While that would give us a solid correction, it would still avoid a bear market.
So overall, the technicals are bearish, but there’s some strong hope for a rebound this week and a rally to new all time highs by the end of the year. I would be very cautiously bullish this week and set tight stop losses on all of my trades just in case we do continue to sell off.
Economic News
Some of the delayed economic news has started to flow in. The September jobs data came in better than expected, but did show a revision of the August jobs data to a negative number (a strong indicator of a recession). The market took this news as extremely bearish because it makes the idea of a Fed rate cut in December significantly less likely. The stock market saw the largest intra-day decline since May (a drop of over 4% in one trading day, flipping from up 2% to down 2% by the end of the day).
We have more delayed September economic data being released on Tuesday and Wednesday, so be careful if you plan to day trade this week, because we might see more massive intra-day price swings on Tuesday and Wednesday.
The Federal Reserve is entering a black-out period, so there won’t be any more Fed speakers until after the FOMC meeting in December. This means the market will be relying upon the delayed economic data to guess whether or not the Fed will do another rate cut in December. And since that’s the largest mover in the market right now, watch out for the economic data being released on Tuesday and Wednesday.
Here’s the full list of all of the economic news coming out this week as well as the time each report is being released: https://www.marketwatch.com/economy-politics/calendar
Here’s what time each Fed member is speaking this week: https://www.federalreserve.gov/newsevents/calendar.htm
Earnings
Earnings season is wrapping up, so there are only a few notable companies reporting earnings this week. Those companies include Alibaba, Nio, and Dell all reporting on Tuesday.
Crypto
As we’ve been talking about, crypto continues to crash. I still believe the sell-off will continue for the next few months, with Bitcoin bottoming out at around $55,000. Expect major selling in crypto stocks to continue, especially stocks that hold Bitcoin, as the value of Bitcoin falls below those company’s average purchase prices. Stocks like MSTR are being hit especially hard.
While it’s a little late to jump into a trade, I am reiterating that the way I would play this is to short crypto (and crypto stocks) through May of 2026. Then sit on my hands for 6 months. And then start buying crypto and crypto stocks again in November of 2026. That would be the best play if this upcoming crypto winter plays out the same as the prior two crypto winters.
Other Things to Know
Multiple trading platforms continue to offer free stocks and high yields on cash. So get your free stocks while you still can at https://weprofit.io/platforms/.
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Wishing you the best of success trading this week,
Stock Curry