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The Pause that Refreshes?

Coca-Cola has had a variety of slogans throughout the years. One of the most popular of Coca-Cola's many slogans was the famous ad campaign circa 1929 "the Pause that Refreshes." In the late-1920s, as America was heading into a depression, Coca-Cola wanted to appeal to consumers that were struggling financially. President of Coca-Cola, Robert Woodruff, encouraged people to slow down and take time to enjoy Coke by creating the famous slogan. Kind of like stopping to smell the roses, or like Kevin Cashman states in his book "The Pause Principle" – we need to go slower to go faster.


Confused and volatile may best describe the market action this year. There are visible divergences in major stock market indexes this quarter. Volatility may continue over the next few days/weeks as professional money managers adjust their portfolios to the end of the quarter. However, like the famous Coca-Cola's slogan of 1929, this may be the pause that refreshes.


As investors and traders, we like to see the overall market moving and trading in sympathy with one another. It is easier to trade and invest when the market indexes are contradictory. For instance, in the past few days, major market indexes such as Dow Jones Industrial Average (INDU), Dow Jones Transportation Average (TRAN), NYSE Composite Index (NYA), S&P 400 Mid-Cap Index (MID), and S&P 600 Small-Cap Index (SML) have recorded fresh new all-time highs. On the other hand, Nasdaq Composite Index (COMPQ), Nasdaq 100 Index (NDX), Technology Select Sector (XLK), S&P 500 Growth ETF (IVW), Computer Technology Index (XCI), and Semiconductor Index (SOX) continue to trade near or below their respective 50-day moving averages and below their all-time highs.


The big question is, with Congress passing the next 1.9 trillion stimulus package, the economy improving, but continued concerns about the reopening and the uncertainties of rising inflation will the market remain volatile and choppy?

From a technical perspective, the recent market actions may be a pause before the resumption of the primary uptrends. Why? Market internals remains healthy. The market breadth continues to broaden. If a market top is imminent, a contraction and narrowing of market breadth often occur. Rotations and money flows are also constructive. Money is not leaving the stock market. Instead, money is entering value stocks, international stocks, small caps, mid-caps, Financials, Industrials, Materials, Consumer Discretionary, and other economically sensitive areas. Major market tops often show rolling over of key sectors (i.e., rolling bear markets). Speculation is also not as widespread as some are reporting. Yes, there may be pockets of speculation, but it does not appear to be widespread. US interest rates may have rallied sharply in recent months, but it does not appear to be the start of the next structural bull trend. Although NBER has not officially called for the end to the Feb 2020 recession, it does not seem that recession or deflation will reappear soon. The easy money from the FED and the massive fiscal stimulus programs, the steepening of the US treasury yield curve, and rising commodity prices hint at rising inflation and not another recession or deflation in the future.

So, what do we need to see from stock market indexes to convince investors and traders that this is only a pause that refreshes rather than the start of the next bear decline?


Technically speaking, technology-based indexes must first rally back above their respective 50-day moving averages. They must also negate their left and right shoulders and preferably record new all-time highs. Enclosed below are key technical levels for COMPQ, NDX, XCI, and SOX.


Nasdaq Composite Index (COMPQ – 13,398.67)


50-day ma = 15,358.08

Left/right shoulders = 13,728.98 (1/25/21) and 13,607.36-13,601.33 (2/24/21 and 3/2/21 highs)

Head and all-time high = 14,175.12 (2/16/21 record high)

Neckline = 12,214.74-12,397.05 (12/10/20 and 3/5/21)


Nasdaq 100 Index (NDX – 13,052.90)


50-day ma = 13,150.99

Left/right shoulders = 13,563.70 (1/25/21) and 13,312.42-13,301.62 (2/24/21 and 3/2/21 highs)

Head and all-time high = 13,879.77 (2/16/21 record high)

Neckline = 12,226.13-12,208.39 (12/10/20 and 3/5/21 lows)


Computer Technology Index (XCI – 5,501.04)


50-day ma = 5,477.80

Left/right shoulders = 5,658.88/5,587.94 (1/26/21 and 3/1/21 highs)

Head and all-time high = 5,781.25 (2/16/21 record high)

Neckline = 5,167.59-5,228.25 (12/21/20 and 3/4/21 lows)


Semiconductor Index (SOX – 2,997.13)


50-day ma = 3,004.73

Left/right shoulders = 3,141.0 (1/21/21) and 3,186.12-3,172.42 (2/24/21 highs and 3/1/21 highs)

Head and all-time high = 3,269.02 (2/16/21 high)

Neckline = 2,6675-2,759.20


Source: Courtesy of StockCharts.com


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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