Weekly newsletter of Danny Merkel - Issue #89
Market Review:
The market closed on Friday down for the day, which finished a down week within the context of a down month that is taking place in a down year.
Now that the dreaded month of September has come and gone, let’s review this month’s candle:
QQQ monthly chart (2011 - present)
September’s candle looks pretty gnarly, being down almost 10.54% for the month.
To be more specific, notice that the candle has an upper wick. This shows that the bulls attempted to rally prices higher during the month, but failed to hold any gains.
In addition, there is no lower wick, which means that the bears pushed prices lower and the bulls were too weak to fight back. All in all, the monthly chart shows that bears are absolutely 100% in control of the market at this moment.
Let’s now look at the same monthly timeframe, but for growth stocks only.
IWO Growth Stock Index (2011 - present)
One observation that stands out to me is how little progress growth stocks have made over the past 4 years. With the average growth stock trading lower today than August 2018, this is clearly not a normal bull market.
The second observation is that the index did manage to bounce off a major level of support (black arrow), which was bullish, but only short-term.
Today, price is cascading towards the same level of support for a second time and, in my opinion, it is unlikely to hold again. In the event support does fail to hold, the next logical level of support would be the lows of March 2020.
With bears so firmly in control, it’s an extremely risky time to buy the dip and this next chart shows another perspective of this danger.