Nothing has fundamentally changed in the economy to warrant a sustained rally in the stock markets, said Gareth Soloway, chief market strategist at InTheMoneyStocks.com, speaking with Kitco News at 3:45 pm EST on Monday.
“I don’t believe anything major has changed. We knew a vaccine was going to come, the projections are still first quarter, early second quarter,” he said. “The same thing with Biden coming into the White House, it doesn’t change a lot of the economics of the market, so it does concern me and I used it to put on shorts today.”
The Dow Jones rallied 800 points in the biggest single day gain in 5 months on Monday following Pfizer's announcement that their COVID-19 vaccine is 90% effective.
Markets are seeing a wild day with swings in both directions. We're going to break down, what's moving up, what's moving down and whether these trends will continue Gareth Solloway chief market strategist at in the money. stocks.com joins us today. Gareth great to have a technical analyst. It's pleasure speaking with you today.
Welcome to kick off. Hey, thank you so much for having me, David. I appreciate it. Before we break down on individual securities that are moving and making headlines, let's talk about a broad market overview. What are you seeing right now in the S and P 500? Well, it's kind of an interesting day to day on the S and P 500, because, you know, we opened so much higher after a huge run.
Last week, you had the, kind of the Biden jubilation, if you will, where it seems like the market wants the calm, but without the Senate being fully controlled by the Democrats. Um, so the markets had run up immensely in the last week. And then we opened today on this vaccine, this COVID news. Um, and really the scary thing about it for me is that the markets have not held to their highs.
And we've seen the S and P 500 pull back pretty substantially off the highs. The QQQ has actually gone negative. And on the chart here, I just wanted to quickly show something. And this is something that gets my attention. So, you know, when asked one word that kind of describes today's price action, I would say, yikes.
From the aspect of the high pivot here, you can see the markets have come down and we're trading close to the lows. Now, listen, that's not to take anything away from the massive gains that we have on the S and P, but we were up a lot more. And anytime you have a gap up, it's the institution's gapping that market up.
So what's going on is the small investor got very excited since the open, right? They're buying, they're buying, they're buying the Robin hood traders, et cetera. But the institutions have been selling into it. And you can see that very clearly on the chart of the spy here. And what concerns me is you have the previous all-time high right here, going back to August and notice the markets.
And we still have a little time left in the day here, but we're now hammering on that level. On a technical basis. That is a huge point to watch into the close today. If we close below it, you're looking at major weakness potentially over the next few days. If we close above it, the S and P has a shot. The other thing that I would be concerned about too is if you look at a longer term chart on the spy, look at this long-term trend line, going back to 2018, notice how in 2018, we had the big December drop.
We then rallied back. We made this all time high just before COVID and then we had another drop off of that line. And then if you stretch that out, you go to this high, which was just a couple months ago or so, or a month ago. And we fell sharply there and look at what, where we opened. Right. Right into that same trend line again.
So again, it looks like the S and P is down taking below that level. So that's a level I'm really, really focused on. Gary. Can you walk us through your day-to-day? Let's say, you know, you woke up today, you, you check the pre market opens, you check the futures. They were up more than 1% before 9:30 AM Eastern time.
What, what was, what was your thought process then? What did you do? Did you buy into the strength? Did you wait? Did you sell what happened? So, so the first thing I did was, uh, when I opened my eyes, I always check my phone and check the futures. That's the first thing real early in the morning, especially here on the Pacific coast.
And first of all, I was like, is this right? The spy is up 15, 16 points on the day. And then obviously I saw that it was. In fact that, um, as soon as the market opened, I started taking profits on call positions. We had, um, I had American airlines calls. I had calls on, on various other stocks. Um, I also took profits, like for instance, JP Morgan opened up huge this morning and I had to take that off the table.
So. Profit taking anytime you get an extended move like this, where you're, so short-term overbought. And again, I'm just talking about the last week, but it has been a massive move. You have to think of like a, like a shorter-term trader, because in my mind, I'm always saying to myself, well, give me a pullback and I'll be buy that's fine with me, but I always like to pocket those profits.
In addition, what did I do today? I started accumulating some shorts, so I picked up some VXX, which is long volatility, but tends to work when the markets fall. Um, I picked up some Russell on the short side today. Uh, I also picked up a few other stocks on the short side and it continued to hold a few shorts as well, going into this next period in the market.
And again, it just comes down to this period in the market where. I don't believe that anything major has changed. We knew a vaccine was going to come. The projections are still end of first quarter, early second quarter. That's the same. Yes, we have good news today, but the same thing with Biden coming into the white house potentially here, it doesn't change a lot of the economics of the market.
So it does concern me and I did use it to put on shorts. Gary, are you using the VX X as an instrument that just hedge or are you shifting more of their positions into net shorts? How does that work for you? And how long would you be holding that instrument? Because I've heard that options get decay over time, which is what the instrument is based on.
Absolutely. The VXX is only a short term trading vehicle, just like the triple ETFs. They decay very, very quickly as well. So for me, it's looking for not, not really a hedge, as much as I'm looking for gains out of it. I do expect this market to fade pretty sizably over the coming weeks and months into year end and something that I'm not noticing a lot of people discussing, but you do have the chance for still in January.
For the Senate to be controlled by the Democrats. You have the Georgia runoff elections while the odds are very low, that the Democrats could sweep both of those elections. It puts the investor in a really tricky position because they have to make the determination. Do they want to risk long-term capital gains going higher in 2021 when they won't know the outcome of that until early 2021.
So think about the conundrum. You know, if you have, you know, you have these, these billionaires and multimillionaires with sitting on Apple for the last five years with massive gains and you have a situation where they have to decide at the end of the year, do they want to risk holding into the beginning of January?
In case those cap gains go up. And for a lot of them, it's going to be a double, double rate potential. Again, I don't think it's a high risk, but it is something that individual investors have to take into account when doing risk assessments on the market. Okay. Well, how big of a risk is it? I would say 20 to 25%, but when you're dealing with investors and big players that have, you know, tens of hundred or hundreds of millions of dollars in profits, um, they have to take that seriously.
Especially if it's a hedge fund that's that has clients that rely on them to make the right decision. Right. I mean, they're not allowed to be wrong in a major way, especially when it comes the taxes. Yeah. All right. You know, I've heard so many analysts tell me that a Biden win. Is detrimental for the stock markets, but that's clearly not what we've been seeing in the last couple of trading sessions.
Can you explain the conundrum here? Yeah. So it, it really comes down to, in my opinion, the stability, right? So the market's got the best of both worlds for now, meaning that the Senate stays Republican for now. And so you don't have the risk of corporate taxes going up. Um, in the short term, you don't have risk of, of the long-term cap gains going up, but at the same time, you know, I think doesn't matter who you support in the election.
Trump is Trump was a little bit more of a loose cannon when it came to, to, you know, tweeting and making statements off the cuff. While Biden will be a much more calm person. I'd be even surprised if we get more than one tweet a month from Biden, frankly. Uh, again, being an older gentleman and he doesn't have, he doesn't show him that he tweets a whole lot.
So I think that's where the markets are coming from. They're saying, okay, calm, maybe better relations with these foreign countries. That could be a good thing. Plus you don't have the negatives of the tax increases. Great. Let's go back to your trays now. You're bothered. VXX why not buy, puts, what's your rationale there?
Um, just, just the aspect of, of. Puts so puts what I would be, I would be short volatility and I definitely want to be long, especially from what I'm seeing in the markets here today. I mean, let me just bring up the QQQ chart and just take a look at this. I mean, here we've, we've talked about technology being super strong for so long and clearly you can see that.
The QQQ chart, the NASDAQ 100 is not even close to the previous all time high. And in fact, you topped out at this second little pivot and have sold off pretty sharply. So for me, it's looking at these charts and saying there's a lot of distribution. There's a lot of big money. That's using the volume today to unload for instance, on the S and P or the spiders here, you already have about 139 million chairs.
To put it in to put it in context on Friday, we traded about 70 million. So it's going to be about double the volume on Friday and it's, it's sell volume. The spiders are now below that previous pivot high they're apparently looking to close potentially on the lows of the day to day. Very, very bearish price action.
And I know I might be coming on and people are like, Oh, well, you know, it's such great news, but the market is always for looking, right. It always looks ahead. And the markets again are seeing something here that I have to take into account for me and my members here. And we have to act immediately. Okay.
So would you be surprised if markets sell off later this week? No. In fact, in fact, from the price today, I would be almost surprised if we don't sell off or even over the next few weeks, I could see us retracing on the spider's back to potentially the dual moving average, the 50 and the 20 moving average.
And then what you're going to look here and see on the, on the, you have a channel that's been building here from this lower pivot, which is just about three 20 on the spy. To this high pivot, which now apparently we're back below. And that means that upper range has held. Um, if we break down, you could go as low as three 21 level or three 20 level on the spiders before major support, and then even potentially down to the 200 moving average.
Okay. Let's take a look at individual movers here. American airlines is something that moved a lot today. You brought that up, you sold a. Some of your calls on American airlines. So let's take a look at the charts here went up 16%, but I don't think it's still trading at a pre COVID levels. My correct. So basically the markets are pricing and vaccine is going to make people travel a lot more, but not as much as they did pre COVID.
Is that, what was that? What the prices are telling us? Yeah. What it tells us is that the road to recovery is going to be longer. They're going to burn through more cash. And ultimately a lot of people, a lot of investors have said, well, you know, can this trade back to where it was pre COVID? And it's not such an apples to apples comparison because they've taken on so much debt.
So you have to factor in the debt because it's diluted. Ultimately it's diluted to shareholders. And that is again, going to basically mean that even if this thing trades back to 20 to $25, you have to think of it as being all the way at $30 because of the excess debt that they've taken on. Okay. Now, uh, this move today, how you're reading that big move upwards, but, uh, in the grand scheme of things, this, this chart here, like the downtrend is still prominent, right?
That red line you're showing us right now. That's the daily 200 moving average and it opened right there and sold off. So again, you know, for me, it's, it's looking and being patient. One of the big things that we have to keep in mind as investors is that you never want to chase a move. So I didn't wake up this morning and say, Oh, I got to buy all these stocks.
If I wasn't in them before. You don't want to chase chasing as the Cardinal sin of investing and it gets us all into trouble, but yeah, for me, I would consider buying it if it retraces and fills the gap and the gap looks to be right around $11 and 45 cents. So gap fill for me would be where I would look to pick this up.
And honestly, I think we get there. The price action today is dictating that it could go there. Okay. Uh, let's take a look at the other one that moved to LA Pfizer moved, uh, huge moves, 12%. Last time I checked. For obvious reasons. Again, let's take a look at the stock in context here. So we've got a, what are you looking at right now?
What's that? Yeah. So Pfizer opened up. Yeah. Pfizer opened up sharply here today, but it filled a gap. So there was a key gap that just underneath 42, 41 and a half or so, and it basically opened above that and couldn't hold that as well. And this again is a chart. I mean, when you see charts that open so strong and there's just not the buying pressure and think about it like a, I don't know, like a, um, Uh, an inflatable ball, right?
If you keep inflating, the ball gets bigger and bigger, but there's obviously holes in this ball, this market ball, and it's starting to come in and all these charts. It's amazing to be honest, all the charts have faded sharply to the downside, including Pfizer. Now, Pfizer is one where if it just pulls back, I mean, you know, I would say even at $38 or so.
You get back into this support right here. And it's probably worth picking up, even though they're not going to make a huge profit per vaccine, it's still going to be, they're going to make it up in numbers. So they're going to have some monstrous numbers. And I think, again, this is probably one that would be worth playing.
One thing I'm just seeing on it here, as well as you could potentially make out an inverse head and shoulder pattern here. Um, you can kind of see it right here, in fact, and based on today's close, it would be a breakout. So just to go over it, here's a shoulder. Head and a little semi head and then shoulder right here.
And today we broke above the neck line. This is the neck line right here, which is the trigger. So basically retested that neck line and it held. So this is again a stock that it gets down towards 38. I think you start to accumulate. Let's talk about, uh, let's talk about the, uh, other side of the, uh, spectrum here.
Things that went down a lot. Let's take a look at zoom. Here's what I don't understand. So zoom went down a lot, right? Double digit drop. Uh, what's the assumption here is that we're all going to go back to the office and no one's going to use zoom anymore. No, it's definitely, definitely zoom is here to stay.
Um, it's a great, great asset to businesses. And I think in all fairness, workers are going to be giving, getting the, the option to work from home a lot more, if not exclusively. So zoom is here to stay, but it's still, you know, the markets are very emotional and when you get the news of a vaccine and good data at 90% efficacy kind of stuff, Um, you're looking at a scenario where there's going to be a certain amount of traders and investors that are going to sell the stock, especially with the gains and the valuation.
I mean, even here, the valuation is stretched. I see a huge gap fill right here that likely wants to be filled. And again, that's right around the three 20 ish area. And that would be where it starts to look attractive. It might go a little bit lower, but definitely keep in mind that for six months, This stock has been the rage of investors, right?
I mean, everyone wants to own zoom. So there's going to be an unwind. I look at it like the pendulum effect, which is something that I talked to my traders about where, when something swings massively to one side, Then inevitably, it's going to have to swing the other way, like a pendulum. And you have to just as a trader, understand that.
And it's emotionally, it's an emotional reaction, but it is something that for us as traders and investors, we have to be okay. Uh, what's the purple line there? Blind here is the 50 moving average. So you could see you came down into the 50 and then you bounced back to the 20 moving average. And then basically this created a little bearish pattern and inside bar bear flag, and then you can see it playing out today.
Now this unwind that you're talking about, it looks like it's been an winding for a while. This is not the first day it's dropped. So, I mean, I feel like, I feel like investors are already, you know, the sentiment, the risk off sentiment on zoom has already begun. Right? This is just a continuation of that.
Absolutely. So, so this is the kicker, right? Institutions are always forward-looking generally investors are reactionary to news. So when you look at the stock up here, you clearly saw selling and then you bounced and then you saw more selling this. The majority of this selling is institutional. All right.
Once you get the news, then you get the smaller investor who was holding onto this thing to react. And that's where you get these bigger moves down on panic selling, which is by the way, what you need to get to a bottom. So you want to see, you don't want to see institutions selling. You need the smaller investor to panic.
And once that happens, then you can finally get a bottom. I still think it's got a little ways to go because there's. I mean, let's be honest, you know, I think we can all agree. This was the hottest stock for the last six months of almost anything in the market. So it's going to have me to the time to unwind.
Okay. Uh, how much could this unwind take place? Do you think you have a ballpark? I think that if, um, if, if you get a sell in the market that can help push it down, you know, you could be the, to this support area here, which would be a good balance level within days. Um, if the market kind of stabilizes here and doesn't sell too much, then we could be looking at, um, uh, you know, it could take a few weeks to even a month or two into engine early next year.
What's that yellow line at the top. How many days is that? That's the 20 moving average. So can we go back to where the 20 moving day average and the 50 day kind of converge a couple months back? Oh yeah, right here. Sure. Usually when they touch like that, what does that tell you? It basically tells you that the long-term trend is meeting the short-term trends.
So you can see here, the 20 moving average that the stock was moving up and then kind of flattened out for, I don't know, it looks like about 20, 30 days or so. And that enabled the longer term, which again is 50 day moving average to play catch up. It's usually a signal for upside when you get that, because the convergence is called a neck tie.
And it usually again, if price comes into it, as you can see, it kind of came into it, it was the springboard to the next leg to the upside. Okay. Do we see the 50 day go up higher than the 10 day? I can in this door itch, it can in the short term. Absolutely. If you got to w what you'll likely see here, so let's just say on zoom, we trade down the next few days, heading towards this target down here, this gap fill.
What you'll see is this 20 is going to start the curve down very, very quickly. The 50 moving average will flatten out and eventually you'll see the 20 cross over the 50 to the downs. Okay. Let's take a look like gold. Now. Gold is another one that really dropped today. And, uh, there are all sorts of reasons I've heard as to why.
What, what do you think? Yeah. And it's a, it's a good one. So I did see the dollar was trading higher today, which puts pressure on gold. But I think it's more of the relief from investors. I think there's a certain group of investors and a large group that held gold because, you know, you just didn't know if this virus was ever going to be conquered.
And as soon as you got that vaccine news and it was very, very positive. There's a certain group that are going to dump gold. Um, I'd love to show you some charts on gold that actually give a longer term target. Even though we're pulling back here on the charts. There's some there's charts that are signaling within two years.
We're going to get close to $3,000 per ounce on gold. So let's start out here. I have this chart in excuse the crudeness of it, but you can see very clearly here. This is a chart going back to 2000 and you know, basically 2001 right here when the big, first move in gold began. And what's unique about this.
This is taking into account, what's called a measured move, where you take the entirety of a move up. And then you basically add that distance to the low pivot of the next move and it gives you your target is a very, very accurate way of doing it. So in this section, inflation in 2001, we were trading around two, 200, $260, uh, on gold and over the course of a bunch of years into 2011, we topped out at 1920.
So that's a $1,660.40 move on gold. Now you have the low pivot here, which is around 1200. That you know, bottomed out here in 2012, 2013 and so forth. And now we've started to move up again. Now, the idea of a measured move is that you shouldn't be able to take that 1,606, and there's the market closing 1,616.
Point move and add it to 1200. And that's your upside target? So the idea here is that your target is 2,860 in the short term. Now there's another thing I want to show that even more intriguing here on this longer term gold chart. Okay. Um, And when looking at this chart, I'm going back to 1980, 1979, you know, really quite a while ago.
And you could see right here that you had this big run-up in gold to 875, approximately. And then for 30 years it based. And then it began to rise up and get into the same double top at that same eight 75 level it back-tested and then finally broke out. And then for two years, it Rose sharply hitting the recent high.
Uh, where the, the high in 2011 of $1,920. And then again, you have this long, basic consolidation now to figure out this target, you basically take this high eight 75 subtract 1920, and you take that distance and add it higher from the breakout and you get 1965. So you can see both of those targets are right underneath 3000.
And that gives it a great kind of general target. Now notice I say two years. So here, this move took 30 years and here we are consolidating for 11 years. So where the heck is two years coming from. Um, and that's just the time that it took from the breakout. And lastly, just the last thing I'll say here is this move.
30 years from this high to this high. And then we're already back to the highs in 11 years. The simple answer to why it's going so much faster is money supply. You have huge government debt being wrapped up. You have money supply being wrapped up, you know, just increasing exponentially compared to what it was during that period.
So it makes sense that the move higher is going to come a lot faster. Okay. All right. So you're buying the dips then I assume. Yes. Yes. In fact, what's so cool about this is that if you look at this poll back in 2007 or so, where we almost broke out and then we had this recheck, it looks like we're doing the same exact replica recently where gold broke out briefly above that previous 1920 high.
And now we're checking back, which explains why you see gold down today, somewhat. And it tells me that could go a little bit lower. So lastly, here, if we go back to the GLD chart, I'll show you what I'm looking at here. If by chance you could get down to the 200 moving average on the GLD or this kind of level here.
So one 70 to one 65 on the GLD. That to me is a great accumulation zone. Just an amazing technical accumulation zone for the idea that you're going to have this next wave of buying up to about just shy of 3000 pounds. Perfect. Thanks very much Gareth. Very good. Thank you for coming to the show today.
Thank you so much for having me. Thank you for watching kiszko news. Stay tuned, much more updates for you.