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Mid-March 2021 Market Analysis

U.S. stocks were mixed early Friday [March 19^th 2021], being wholly indecisive in the wake of this week’s Federal Reserve policy actions. Looking back, since technology took on a wild ride after the initial news of the pandemic and participants elected to buy the dip, we’ve had two major pullbacks in the S&P. The initial pullback lasted about 15 trading days and began in early September 2020 negating the traditional “Labor Day Bull case” last year, which was followed immediately by, yet another buy the dip which resulted in liquidation back to the same late September 2020 low levels in end-October when the news of the pandemic got worse. Since then biotech stocks combined with Infotech sector carried us higher in the optimism of a vaccine development combined with the continuation of the easy money policy from the Fed.

Mid-February 2021 brought us the fear of rising inflation as the 10-Year yield began ticking higher in the wake of lackluster treasury auctions. Technically, this pullback in the fears of rising yields did not bode well with growth stocks which gave up most of the gains since October 2020 and as money managers and funds began to rotate monies from growth into cyclicals. It is the reason we’ve seen the DJIA rally in the backdrop of a falling S&P and Nasdaq.

It is my opinion that yields will continue ticking higher into about 2% and stocks will continue to vacillate but the early March’21 pullback coinciding with the anniversary of the pandemic has seen the worst of the drops while pushing the Nasdaq lower into correction territory but holding value above 3725 area which is now working as the 50% Fib retracement from the November 2020 low.

Into April/May, I see the SPX making a run past 4000 and climbing as high as about 4053 before the next pullback or liquidation break when holding the 4000 level becomes a bit cumbersome after the core of Q1 earnings.

The tech heavy Nasdaq on the other had needs to hold 12024 which forms another Fib technical level from the early November 2020 lows to the mid-Feb 2021 highs at 13879.78.

The Dow Jones Industrial Average is undergoing some profit taking from the  the most decisive Feb-March breakout. The move up higher while historically a bit unusual not sequestering participation from the S&P specifically and technically clouding over four straight closes atop the 20-day Bollinger bands. In the shorter term, it looks a bit extended and with significant pullback contributions from the S&P could pullback a tad bit lower before continuing it’s march higher.

Overall, markets remain resilient to buying the dip and therefore still bullish having not violated entirely major long term support levels.

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