On Friday, S&P 500 momentum went negative. This signals that it’s time to take speculative trades off the table and start to build cash positions. It’s been a tricky few days, but the current market conditions are marked by the rise of COVID-19 in Europe, concerns about inflation, and the winding down of earnings season.
Catalysts for the market are largely negative, particularly ahead of a short holiday week. Volumes have remained quite low compared to the last 30 days. It’s the first time that S&P 500 momentum has been negative since early October. I highly recommend that you exercise caution. Consider selling calls on existing stock positions and consider hedges on your largest positions if we see a prolonged downturn.
Typically, drawdowns in the S&P 500 haven’t lasted very long since March 2020. But, it’s always best to be cautious and not rely on short-term recoveries.
What Negative Momentum Means for Next Week
As I said, there isn’t much happening during this short-week in the coming days.
I am watching two things. First, Zoom Video (NASDAQ:ZM) will be reporting earnings. It’ll be very interesting to see if the company has a positive outlook based on the rise of COVID-19 again and concerns about new strains. In addition, I’m very interested in Zoom’s outlook on business use in the years ahead.
I’ve said before that in conversation with HR managers, a lot of businesses are not expecting their employees to come back to the office. The desire for a more balanced work-home environment combined with accelerations in video technology and other at-home tech will drive major change around the nation.
Second, it’s fitting that we have an earnings report from Best Buy (NYSE:BBY) on the week of Black Friday. This company is a dinosaur, and every time that I walk into a Best Buy location I can’t believe that they are still in business. But they’ll be back, defying gravity, with their earnings report. I’m not expecting that Best Buy’s stock will run next week. Shares are already up more than 15% in the last few weeks.
My focus on Tuesday would be to wait until 9:30 am and consider a short-term put option as other investors try to take some profits off the table. If the stock is down in premarket hours, I’ll likely move on. If it’s up at the 9:30 opening, I’ll speculate on a fade for Tuesday afternoon.
What I’m Discussing Next Week
Next week, I’m going to discuss UiPath’s Together World Tour even in Holland. The automation/robotics company is looking to expand its global presence. While the stock is expensive, I anticipate that it will be one of the biggest winners in the future of worker replacement and technological adoption.
In addition, I’ll keep a very close eye on Black Friday for the retail sector.