The Omicron Emergency
New COVID-19 variant induces panic selling in thin markets.
The S&P-500 index made a new high early on Monday following the news that Jay Powell would be renominated as Fed Chair. But, by Friday, it had declined by -3.3%.
The discovery of a new Covid-19 variant in South Africa (B.1.1.529) led to Friday's rapid and broad decline. The variant is very heavily mutated, with over 30 mutations on just the spike protein, the target for current vaccines. Its receptor-binding domain has ten mutations against just two for the Delta variant. The world awaits more scientific data and analysis.
Expect more selling next week since many traders and investors are away on holiday.
The selling started when the markets opened on Thursday, and the decline can be seen clearly on the 60-minute chart below.
Given the emergence of Omicron, how long will the selling continue?
The heavy selling this week was a bit of a surprise. Initially, rising rates helped trip technology stocks, but the market bounced Wednesday. But the emergence of the Omicron COVID-19 on Friday let the air out of any celebratory balloons. As a result, small-cap stocks were pummelled in a risk-off scenario.
The very sensitive Net Bull/Bear balance was holding up well through Friday, though as noted last week, it was weakening already last Friday. We had consistently expected it to remain green through the Thanksgiving break.
The Omicron Emergency
Very little is known about the newest COVID-19 Omicron variant, and until we know better, expect more volatility in the markets. Many countries have reacted quickly to impose travel restrictions, and South Africa has done an excellent job of being diligent and transparent in tracking this variant. I hope the market will stabilize before Christmas as we gain additional clarity about this variant.
The SPY ETF is close to breaking the uptrend line from the October lows. Optimistically, it will find support near the trend line or just below. However, a decline down to the October bounce highs is a more pessimistic downside target that coincides with the 62% Fibonacci retracement.
I will keep today’s post a brief one since this is a holiday weekend.
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