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Black Friday surprise: Drilling down on Mr Market’s shocking cliff dive

Written By | Nov 27, 2021
Black Friday surprise, market's shocking cliff dive

Image via Pixabay.com. CC 0.0 license. See artist link below this article for details.

WASHINGTON – Like many traders and investors expecting an uneventful Thanksgiving holiday-shortened Friday, we found ourselves caught off-guard by yesterday’s horrendous market bloodbath. (For background, check out the details in our Friday roundup of Mr Market’s shocking cliff dive.) So, after picking through the wreckage of this non-shopping related Black Friday surprise, we thought we’d share our updated market assessment thus far.

About Mr Market’s nasty Black Friday surprise…

As even most non-investors must know by now, Friday’s stock market spookage was caused, at least on the surface, by recently reports that a brand new, guaranteed-to-be-deadly Covid variant had popped up in South Africa. Worse, random cases of the new variant, absurdly designated “Omicron,” emerged in Israel, Belgium, the UK and elsewhere. Travelers returning from South Africa and environs apparently returned to their home countries carrying the variant.

(More on the “Omicron” designation a bit later.)

The media, of course, immediately trumpeted one of its by-now typical worldwide Covid terror alerts, with various “scientific” article claiming that Omicron had as many as (irony alert) 57 Varieties (well, maybe 30) of ways it could replicate and spread throughout the human body.




Quicker than you can say “Covid,” Western governments immediately began chattering, like the fascists they are, that they might have to impose new travel restrictions, quarantine regimes and yes, lockdowns (Merry Christmas!) to stop the spread of something they essentially know little about.

… Leads to Mr Market’s shocking cliff dive

Investors picked up on that panic narrative over Thanksgiving. They quickly did the math and concluded that airlines, cruise lines, travel plans, restaurants, fuel prices, banking – you name it – were sure to be adversely affected. So they sat down at their computers Friday and smashed the SELL button for the rest of that shortened post-holiday trading day. Presumably, you know the rest.

Writing for the free section of Stockcharts.com, John Hopkins takes things from there.

“The news that a new [Covid] variant has popped up spooked the market on Friday, with all of the major indexes getting hit hard. But the truth is the market had gotten overextended and really was in need of a pullback. It just so happens to be that the news about the variant that did the trick….”

It sure did. Take a look at the McClellan Oscillator chart below (courtesy of Stockcharts), compiled after Friday’s close. The McClellan Oscillator is a proprietary indicator that’s very good at predicting extreme overbought or oversold conditions, which often lead markets to short and / or longer market bounces in the opposite direction.

Black Friday surprise, market's shocking cliff dive

McClellan Oscillator, COB 112621. Courtesy Stockcharts.com.

Note the area we’ve circled at the extreme right of the chart. Stocks were trying to recover from an earlier, fairly extreme downtrend just before Thanksgiving. But, as you can see in the circled area, Friday’s massacre took care of that. Instant cliff dive.

Friday’s VIX chart amply underscores the market’s shocking cliff dive ignited by that nasty Covid-related Black Friday surprise

Perhaps even more impressively negative, take a look at Friday’s VIX chart, which provides a picture of Wall Street’s classic measure of stock market volatility. Volatility is a wonderful thing for options traders who bet on extreme – and extremely fast – market moves, up or down. But, on the other hand, patient, long-term investors (which is how we generally prefer to invest) like quieter markets and live in terror of what Fridays VIX chart shows us.

Black Friday surprise, market's shocking cliff dive

VIX chart, COB 112621, courtesy Stockcharts.com.

Again, we’ve put a red circle around the VIX’s surprise explosion to the upside Friday. Unlike most stock charts, a big up move in the VIX terrorizes long-term investors. It tends to indicate that a big, profitable portfolio of stocks might find itself in jeopardy. Just look at the huge, “island” jump in the Friday VIX, as indicated by the red circle on the chart. It’s way out of line with the modestly “up” bias reflected in recent trading action. Scary. And something that can’t last, one way or the other.

Now, let’s get back to Hopkins’ article.

“Does the [Friday] pullback off the recent record highs mean the bull market is over? I hardly think so. In fact, if anything, it might attract more buyers who missed out on the 14% rise in the NASDAQ in about a seven-week period of time. Think about it; 14% would be considered a good year for many investors. And let’s not forget the NASDAQ was up by over 25% for the year when it hit its peak earlier this week. So, honestly, Friday’s ugly day was way overdue.

“But the good news is that many of the stocks that have been responsible for the solid performance in the market today remain intact. For example, take a look at the chart below on NVDA, a company that reported outstanding earnings and still remains above all key technical indicators in spite of Friday’s retreat.”



Nvidia evades the Black Friday surprise

So why don’t we also take a look at Hopkins’ chart for NVDA – the ticker symbol for tech giant Nvidia (NASDAQ: NVDA).

Black Friday surprise, market's shocking cliff dive

Nvidia chart, illustrating this stock’s ability to withstand Friday’s selling storm. Courtesy of Stockcharts.com.

Again, checking out the extreme right of the chart, which reflect the most recent trading action in NVDA shares, we can see an offsetting pair of bars – first a white bar (positive trading bias, i.e., a day when these shares closed up) – and then, an offsetting red bar (negative trading bias, i.e., a day when NVDA shares closed down).

Interestingly, even given the Black Friday surprise horror show, this two-day burst of action shows Nvidia held its own, even in the midst of the rest of the market’s selloff.

What does all this mean?

First, that outlandish upward spike in the VIX indicates either that this measure could spike higher Monday, making things much worse. Or, it could drop precipitously, putting it within range of a return to relative normalcy.

In turn, that could induce the bulls to sell their quart bottles of Maalox to the bears Monday afternoon. And it could also encourage longer-term investors to stay put and let Mr Market restore the money they lost on Friday. (Assuming they didn’t sell their assets in a panic.

The slashing downward move in the McClellan Oscillator would give credence to this conjectural return to normalcy, if not on Monday, then on Tuesday latest. As you can see on that chart, stocks were trying to regain ground in this measure in Wednesday trading action. Friday’s crash, of course, crushed that move.

Yet by plunging to an even greater oversold situation, the Oscillator makes an even more convincing case for a rally back to some kind of normalcy next week. A more extreme oversold move in this chart tends to indicate an even stronger likelihood of an impressive snapback bounce. Extreme overbought or oversold market conditions tend to correct quite quickly. (Unless, of course, we find the market stuck in a “black swan” economic event similar to what we endured from late 2007 through the spring of 2009.)

Monday question: Are the bulls or the bears the ones driving this bus?

So we’re looking at a positive market snapback Monday or Tuesday latest. After that, who knows. But Friday’s action was actually an example of an absurd overreaction, one led, as usual, by blood-in-the-streets reporting of another new and obviously more terrible iteration of the Wuhan Flu. (And there will be many more. Trust us on this.)

The ensuing selling panic proved way overdone due to the lack of volume on a shortened trading day. The absurd drop in oil prices offered ample evidence of this, given our still-ongoing supply shortage of fossil fuels.

No increased supply means continuing high – or higher – prices. Of that we can be sure. So the crude oil crash, and the associated crash in oil and gas related stocks, should reverse in short order. Meanwhile, other massacred sectors will attempt to recover as well.

Could we be wrong? Sure. But extreme nonsense like Friday doesn’t generally persist for long. So we’ll go with the bulls early next week unless something tangible and convincing leads us to change our thinking on this.

Postscript:

Political fun is hard to resist. Ditto the instant politicization of the latest-named Covid variant. With other Greek letters already used up to designate less reported-upon Covid variants (Lambda, etc.), it looked like only “Nu,” “Xi” and “Omicron” remained. Why W.H.O. didn’t use “Nu” for the current variant is a mystery. But let’s let this tweet by George Washington University law professor Jonathan Turley explain the rest.


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Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17