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Two-Sided Market?

After rallying to a new intra-day record high yesterday on the backdrop of Biden’s nomination of Federal Reserve Chairman Powell to lead the central bank for a second term, Wall Street retreated into the close with losses as traders feared U.S. rate hikes during 2022.


Today, President Biden announced the U.S. will release millions of barrels of oil from the strategic oil reserve (SPR), coordinating with countries such as Japan, South Korea, India, Great Britain, China, and others to slow the rapid rise in oil prices around the world. U.S. will release 50 million barrels from the SPR after OPEC and its allies refuse to pump more oil.


The U.S. Treasury yields rose sharply higher over the past two days. Rising yields prompted investors to sell Nasdaq Composite Index (COMPQ) and the mega-cap technology-laden Nasdaq 100 Index (NDX) as both indexes fell for the second straight day. However, the S&P 500 Index (SPX), the Dow Jones Industrial Average (INDU), and NYSE Composite (NYA) eked out slight gains today.


The S&P 500 growth index (SGX) declined, and the S&P 500 Value Index (SVX) rallied as investors again shifted toward value-related sectors. Financials (XLF), including many banks, rallied 1.57% as the sector benefited from higher interest rates. The S&P Energy sector (XLE) also jumped 3.07% today after consolidating over the past year. The two value-related sectors boosted the SVX Index higher.


This week will be a shortened trading week as the U.S. stock market will be closed on Thursday for the Thanksgiving holiday and close early on Friday. The uptick in interest rates, an overbought market, coupled with a shortened trading week, give investors and traders reasons to lock in profits ahead of the weekend.


As mentioned in yesterday’s blog, market indexes continue to diverge. For instance, SPX, COMPQ, and NDX established intra-day record highs on 11/22/21 but did not follow through with new highs. Also, bearish negative outside days occurred in the three indexes by the end of the day yesterday. On the other hand, INDU, NYA, SML, MID, IWM, and IWC recorded record highs on 11/8/21 and soon corrected over the past two weeks. Despite the corrections, negative outside days did not develop on 11/22/21 in the six indexes.


The diverging technical actions between the SPX, COMPQ, and NDX versus INDU, NYA, SML, MID, IWM, and IWC hint at a two-sided market.


A two-sided market is when one market is moving strongly higher and the other moving strongly lower. Is this a temporary trading phenomenon due to a shortened holiday week, an overbought condition that needs consolidation, or the start of a sustainable trend change?


If this is a normal consolidation, then the primary uptrend is likely to resume. However, if this is the start of a sustainable rotation then this is something worth watching as year-end window dressing can exaggerate the price actions over the next few weeks.


Source: Courtesy of StockCharts.com


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