Welcome to the Rude Awakening for January 26, 2021

Following up on the pattern we looked at in GameStop (GME) and the underlying reasons for why its shot up, lets talk about the blow-off top pattern.

It might be what were seeing in the overall marketplace

But first, lets take a look at whats going on in todays market.

Stocks are up this morning, once again pricing in expectations on the new stimulus package as well as accounting for earnings winners.

As Yahoo Finance reports:

The S&P 500 hit a record intraday high, and the Nasdaq also advanced. The Dow shook off Mondays declines as shares of Dow components Johnson & Johnson (JNJ) and 3M (MMM) jumped after their fourth-quarter results and full-year forecast topped estimates.

Stocks this week have also been closely tracking traders assessments of the path forward for more fiscal stimulus, especially as concerns over new variants of the coronavirus and a disorderly vaccine roll-out raise the specter of longer-term virus-related damage to the economy.

President Joe Biden has been pushing to pass a $1.9 trillion coronavirus relief proposal through a hesitant Congress but said during a new conference on Monday that he was open to negotiate some points of the proposal, including his call for additional direct checks of $1,400 for most Americans.

In terms of timing, however, hopes for a speedy passage of another stimulus package dimmed, after Senate Majority Leader Chuck Schumer said he aimed to advance the next round of virus relief legislation by mid-March, Bloomberg reported Monday.

I anticipate the stimulus bill to get passed, but I think it is going to likely take several weeks for that to happen. We have a divided Congress, a $1.9 trillion proposed bill after a $900 billion bill that just went through in December, so I dont think the $1.9 trillion is likely to even be passed, Colleen MacPherson, Penobscot Investment Management director of research, told Yahoo Finance. But I do think that in the stimulus bill, it will be more targeted to individuals. We might not have that $1,400 in direct payments. There likely will be negotiations there. And I dont think that the federal minimum wage will be raised to $15.

Meanwhile, investors are also closely monitoring this weeks packed schedule of corporate earnings results and economic data. Notable companies including Raytheon Technologies (RTX), General Electric (GE), DR Horton (DHI), Lockheed Martin (LMT), American Express (AXP), and Verizon (VZ), the parent company of Yahoo Finance, each reported results Tuesday morning, and Microsoft (MSFT) and Starbucks (SBUX) are due to report results after market close.

These are all important moving pieces to take into account in your trading right now. A LOT is going on in this marketplace as we settle into a new year, new administration, and try to move past all the haunts of 2020.

To make your trading a little easier, lets get to our new tool

What Is a Blow-Off Top?

As Investopedia defines:

A blow-off top is a chart pattern that shows a steep and rapid increase in a security's price and trading volume followed by a steep and rapid drop in price usually on significant or high volume as well.

As you can see, its a massive push to the upside followed by a big selloff.

These usually come with the same type of topping pattern we have been seeing in the overall markets.

The key is: there HAS TO BE institutional participation. It cant just be run-up by retail investors like you or me.

If you watch todays video, youll find out why this is important when looking at the overall markets.

It could be an indicator of more bearish movement to come

(Hint: look to the retail sector)

Play it smart out there, folks.

Well talk to you tomorrow.

Regards,

Scott Stewart

Editor, Rude Awakening