Market Volatility Reaches a Boiling Point
As the world waits with bated breath for the outcome of the election, equity investors are faced with a perfect storm of uncertainty. This week, a rare confluence of events has created a maelstrom of market-moving forces, including a pivotal Fed interest-rate decision and a slew of quarterly earnings reports.
A Delicate Balancing Act
With so many factors at play, it’s little wonder that investors are struggling to keep up. The election, in particular, promises to be a wild card, with results likely to take time to sort out. Meanwhile, the Fed’s interest-rate decision looms large, threatening to send shockwaves through the markets.
Market Breadth: A Mixed Bag
Despite the turmoil, market breadth remains surprisingly neutral to bullish. However, there are signs of weakness lurking beneath the surface. The Nasdaq 100, for instance, has stalled just shy of its all-time high, while the percentage of stocks above their 200-day average has plummeted to 53% – down from 75% just two weeks ago.
A Cautionary Tale
History has shown that when the percentage of stocks above their 200-day average dips below 40%, trouble often follows. Moreover, the reading of stocks above their 50-day average has also taken a hit, falling to 52% from 81% on October 14. These warning signs suggest that investors should proceed with caution.
The QQQ’s Heavy Hitters
Fortunately, the top nine holdings of the QQQ ETF, which account for a whopping 50% of the fund, are still trading above their 200-day averages. This could provide a much-needed buffer against any potential market downturn. Nevertheless, investors would do well to remain vigilant, as the current market landscape is fraught with uncertainty.
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