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Stock market: 'This is a positive rally’ after last Friday’s ‘excessive’ sell-off, strategist says

In this article:
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  • IWM
  • ^DJI
  • ^GSPC
  • CIBR
  • CYDVF
  • ^IXIC

Jay Woods, DriveWealth Chief Market Strategist, spoke with Yahoo Finance Live about the technical outlook for the stock market.

Video Transcript

JARED BLIKRE: Welcome back to Yahoo Finance Live. Well, the S&P 500 is hitting session highs as we speak. And that is after President Biden said with respect to omicron, lockdowns are off the table at this moment. But we want to keep with the markets discussion. And we are going to bring in Jay Woods. He is the DriveWealth chief market strategist. And it is time to get technical. Jay, it's always good to see you here. And we've got to begin with the big action. So we had a huge day Friday. It was the worst Thanksgiving since 1931, bouncing back today. But question on everybody's mind is, is it a dead cat bounce?

JAY WOODS: Well, I wouldn't refer to it as a dead cat bounce. I would look at Friday more, you know, as someone that's worked down there for 30 years, that's kid's day. It's amateur hour. I think the market was looking for a reason to sell off. We got it. And then, we lacked any true bit underneath the surface. So there are some things that scare me about Friday's action, and we'll get into that, but I think this is a positive rally over an event that was a little excessive to the downside because of the lack of eyeballs watching the screens that day.

JARED BLIKRE: Yeah, well, we were watching the screens that day. And--

JAY WOODS: Well, you and I were, yes.

JARED BLIKRE: I want to focus in on the YFi Interactive. I have the IWM. This is the ETF that tracks the action in the small caps, the Russell 2000. And you can see here, this is what happened this year. Basically, all sideways all year long, and then, boom, we get a breakout. But it looks like kind of a false breakout to the upside. How are you reading this?

JAY WOODS: Yeah, this is the part that has me concerned. In fact, looking at the breadth in the Russell 2000 before we hopped on air, it was negative 2 to 1, even though the overall market tends to be rallying as a result of Biden talking about the virus. This has me worried. You want to see a strong follow-through on a breakout. We had that channel going back about 10 months. We broke above that 230 level, acting strong.

We tested that old resistance, which, you know, as a technician, you hope it support. It didn't hold. It failed, and it failed kind of miserably. And we're not seeing the strength in the sector again today. So I would think from a seasonal point of view, we may see some more weakness and more volatility over the coming weeks. Year end, I suspect that old channel will hold and will rally back probably to, you know, the 230 level, maybe back above it. And we'll form a new higher channel, as we go forward into the end of the year and into 2022.

JARED BLIKRE: Well, let's switch over to the S&P 500 now, kind of a different story. We've been making record highs for much of the year. And we're rolling off a couple of percentage points right now. What are you seeing in the price action?

JAY WOODS: Yeah, much more constructive in the S&P 500. I mean, we talked about this going back all year how it's ridden the 50-day moving average all the way up. Here, we got a sell-off of a little over 2% on Friday. And we were still a percent and a half above the S&P, above that 50-day moving average. So I think this is constructive. This is a minor sell-off in an overall nice uptrend. And once again, the next few weeks are going to be choppy.

We've got a lot of stuff going on in Washington. You've got Fed speak. Chairman Powell and Janet Yellen will be on the Hill in front of the Senate Banking Committee tomorrow. They're supposed to talk about the COVID reaction and not the variant, but how they handled the first bout with COVID. But something tells me they're going to focus more on rates and how we're going to go forward with his nomination.

And then we have the debt ceiling. Not a lot of people talking about this, but December 3rd, I believe is the timetable where we're going to see that talked about and whether or not we're going to extend it, which we will probably do. But there will be a little political banter talking about that going forward. So it's going to be an interesting few weeks. And then it will culminate December 15th with the FOMC meeting. So, you know, when you look at the Russell, the IWM, and the S&P, the strength is clearly in the S&P 500. It's still in that nice uptrend. It still has those gains for the year.

And that leads me back to the seasonal factors, something you talked about a little bit. Stock Trader's Almanac, my go-to. He had a nice stat out before Thanksgiving when the S&P 500 is up 10% or more pre-Thanksgiving, and that's happened on 33 occasions. 76% of the time, December is positive. And that average gain is 2%. So I'm going to stick with the statistics from the Almanac and seasonal factors, and we can get through this choppy period and finish the year strong.

JARED BLIKRE: Yeah, and I want to get to a couple of other tickers here before we have to go. We've got about a minute or two left. So first up is First Trust NASDAQ Cybersecurity, ticker CIBR, you can see on your screen here. This is a two-month chart. I'm going to take a look at the year to date price action, up 20%. And you can see from March here, it's an uptrend. Higher highs, higher lows, right?

JAY WOODS: Yeah, this is a sector I've talked about for a while. I've been a big fan of not just the sector, but the components in the sector. When you're looking at these ETFs, you want to see what's driving it. And Palo Alto Networks, Accenture, Cloudflare, symbol NET, have all been strong all year. And now you'll watch this week, we have Zscaler. ZS is the symbol there. The stock has been a monster. It is reporting earnings, as is Crowdstrike. So, I think this weakness in a sector that has been strong consistently over time may be a good buying opportunity and a big fan of it.

JARED BLIKRE: And we got to leave it there, but always great to talk to you and chart with you, Jay Woods, DriveWealth chief market strategist.