SINGAPORE (13 October 2021) – Narratives of a global stockmarket meltdown are increasingly louder, but September slides in the major stock indices are proving to be more of a seasonal pattern repeating themselves. Both the S&P 500 and the S&P 500 Shariah have slid some -5% from their historic highs seen in September.
There is a good chance the market will rebound and continue with its uptrend in 4Q 2021 – particularly if positive US non-farm payroll data are released this Friday (15 October). It could be just the trigger that gives the market the upward momentum needed by the dominant bulls.
Predictions of a looming crash have been gaining traction – including one that came from Robert Kiyosaki author of “Rich Dad, Poor Dad” who predicted “the biggest crash in world history.”
Several fundamental developments seemed to have made the market ripe for a crash. These include:
- China’s economic slowdown; the country is world’s biggest consumer;
- the troubles at real-estate giants based in China; Evergrande is risking a collapse with over US$300 billion of debt;
- the stand-off at Washington DC on the country’s debt-ceiling risking US credit ratings and government shutdowns;
- rising commodity prices and supply constraints affecting the energy sectors;
- high inflation rates; and
- the choked supply chains affecting world trades.
There are views that the Evergrande debacle could have contagion effects. The above spurred market sell-offs as investors cashed in and secured their profits since they’ve been in the market since it bottomed in March 2020. No one wants to see their portfolio sink like the Titanic during market meltdowns.
Chartwise, however, the big slides in the main indexes in September were more of seasonal patterns repeating themselves – nothing extraordinary – the slides in prices were caused by the quarterly expiry of both the futures and options contracts. Now, most fund managers are re-adjusting their positions for Q4, when the market is expected to bounce once again.
S&P 500 Index Outperforms Disruptive Innovative Funds
The S&P 500 wrong-footed the disruptive innovative funds, too. Disruptive funds are ETFs that invest in companies with disruptive innovation defined as the introduction of technologically enabled new product or service that changes the way the world works.
Disruptive funds often attempt to outperform the S&P500. But these funds have underperformed this year.
A benchmark fund, a US$20 billion ARK Innovation ETF (ARKK) managed by CEO Cathie Wood, is down by nearly 30% from its high of $159.70 on 16 February 2021, after delivering 153% return in 2020.
The 1-year S&P 500 performance has gained over 28% compared with ARK Innovation ETF of just over 13%.
A tweet by George Maroudas @ Chicago Advisor tells us much clearly about the fund performance in respect to its holdings. The fund so far has been in consolidation since March this year.
ARKK
https://www.tradingview.com/x/jEeMwqHR/
ARKK’s chart above showed that it is way below its moving averages and would need some strong push towards the upside to please its holders.
S&P 500 Index
Chart link: https://www.tradingview.com/x/a1FzNZHQ/
To the untrained eye, the S&P 500 may look disastrous, prompting some to predict a market crash soon. The chart above, however, showed that the market is simply repeating the same behaviour as it did in 2020 – a technical analyst would say as ‘history repeating itself’.
The chart above showed that the S&P 500 made a fall around September 2020 towards October due to the bearish divergence pattern between the price action (1) and the oscillator indicator (1) represented here by the MACD. Interestingly, the MACD histogram made a bullish divergence (2) which was why the market stopped from falling further and resumed its rotation to the upside.
In 2021, the same price action and pattern was repeated as depicted on the chart by (3) and (4). As of 7 October 2021, the MACD histogram was closing towards the positive value and price action is now approaching the 50-DMA. If the bulls continue to charge forward, it will be able to break out from the 50-DMA to depart from the bearish territory.
Data from finviz.com on 7 October showed that advancing stocks were well over 70% with stocks making new highs and surpassing new lows by 67%, which tells us the bulls are currently dominating the market until the Non-Farm Payroll (NFP) data are released this Friday. A positive data of the NFP could potentially propel the market higher and brings more momentum for the bulls. -/-www.halaluniverse.net
Disclaimer: Mr Mukhriz Mangsor is a Certified Financial Technician and an independent trader who contributes to www.halaluniverse.net on a regular basis. He focuses his attention on the technology stocks listed on Nasdaq. The content of this article is Mr Mukhriz’s view and are not recommendations to buy or sell a security. All information is intended as information for educational purposes only and not as investment advice. Readers are advised to seek professional investment advice from licensed investment advisors before investing.
