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July 16, 2021, 4:29 a.m. EDT

Apple, Amazon, ARKK, and other big names indicate a market correction is coming, strategist says. Here’s why.

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Jack Denton

Stocks are near all-time highs, and though U.S. markets opened slightly lower on Thursday, it’s much easier to find bulls than bears these days.

But a technical indicator showing itself in five high-profile stocks and two funds suggests that a market correction is coming, according to strategist Michael Kramer of Mott Capital Management , in our call of the day .

The relative strength index, or RSI, measures the speed and change of recent price movements and is one of the most renowned technical signals. It allows investors to evaluate whether a security is overbought or oversold—i.e. overvalued or undervalued. A reading of 70 or above is considered overbought, while 30 and below is oversold.

A look back at 2018 is enough to tell investors why they should watch this indicator, according to Kramer, who noted on January 29, 2018 that high RSIs for some of the biggest names signalled that the stock market was ready to fall. “Things got really ugly after that through February 8,” he said.

In those 10 days early in 2018, Dow industrials /zigman2/quotes/210598065/realtime DJIA -0.48% tumbled near 9%, the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.91% plunged more than 10%, and the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.91% fell near 10%.

Now, “the same thing is emerging,” Kramer said, “with the biggest stocks all reaching very overbought reading.” 

Apple /zigman2/quotes/202934861/composite AAPL -1.83% , Amazon /zigman2/quotes/210331248/composite AMZN -0.74% , Alphabet /zigman2/quotes/202490156/composite GOOGL -1.96% , Nvidia /zigman2/quotes/200467500/composite NVDA -1.54% , and Microsoft /zigman2/quotes/207732364/composite MSFT -1.75% are showing overbought RSIs, as are Cathie Wood’s ARK Innovation ETF /zigman2/quotes/204808965/composite ARKK +2.47% and the QQQ /zigman2/quotes/208575548/composite QQQ -1.18% fund tracking the Nasdaq 100.

By the end of Wednesday, Apple had an RSI of more than 80, with Amazon at 70, Microsoft at 76, and Google-owner Alphabet at 73 and showing a rising pattern, Kramer said. He noted that Nvidia’s RSI was in the process of breaking a near-two month rise up to 83.

Ark Innovation ETF’s RSI was sitting at 76, while the QQQ was above 75. “When the QQQ RSI gets this high, the outcomes are not good most of the time, including January 2018,” Kramer said. 

The tweet

Jackson Palmer co-created dogecoin /zigman2/quotes/226077044/realtime DOGEUSD -7.92% as a joke, but he doesn’t find it funny anymore .

“The cryptocurrency industry leverages a network of shady business connections, bought influencers and pay-for-play media outlets to perpetuate a cult-like ‘get rich quick’ funnel designed to extract new money from the financially desperate and naive,” he wrote in a must-read Twitter thread that doesn’t pull any punches.

The markets

U.S. stocks opened lower /zigman2/quotes/210598065/realtime DJIA -0.48% /zigman2/quotes/210599714/realtime SPX -0.91% /zigman2/quotes/210598365/realtime COMP -0.91% , following European equities lower /zigman2/quotes/210599654/delayed XX:SXXP -1.83% /zigman2/quotes/210598409/delayed UK:UKX -1.47% /zigman2/quotes/210597958/delayed FR:PX1 -2.39% /zigman2/quotes/210597999/delayed DX:DAX -2.12% while Asian markets were more mixed /zigman2/quotes/210597971/delayed JP:NIK +0.58% /zigman2/quotes/210598030/delayed HK:HSI -3.29% /zigman2/quotes/210598127/delayed CN:SHCOMP +0.19% . Oil prices are under pressure, with international benchmark Brent crude changing hands near 1% lower at below $75 a barrel.

The chart

Daily equity purchases by individual investors has averaged $1.3 billion a day since the middle of June—much higher than the average since the pandemic began—in a peak similar to February’s meme stock frenzy. 

Our chart of the day, from VandaTrack Research , shows that purchases are negatively correlated with stock prices, i.e. individual investors tend to buy more dips than rallies.

“One thing that the current retail buying binge has in common with the February peak is that they both happened in rising markets, which is something unusual,” said Ben Onatibia and Giacomo Pierantoni, noting exceptions in October 2020 and in the first quarter of 2021. “From a market-timing perspective, you couldn’t have asked for a better contrarian indicator.”

Random reads

Big Weiner, meet Big Bun: Heinz Ketchup’s petition for hot dogs and buns to come in equal packs has gained nearly 30,000 signatures . Weiners are in packs of 10 and buns of eight, and the mismatch is “one of the stupidest things on earth,” one signee said. 

I saw a Tiger: A federal appeals court has thrown out the 22-year prison sentence for Joe Exotic in his 2019 murder-for-hire conviction—the alleged plot to kill his rival, Carole Baskin. But “Tiger King ”Joseph Maldonado-Passage isn’t free yet: the federal court in Oklahoma will review his case for resentencing.

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34,584.88
-166.44 -0.48%
Volume: 577.97M
Sept. 17, 2021 5:25p
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US : S&P US
4,432.99
-40.76 -0.91%
Volume: 3.79B
Sept. 17, 2021 5:25p
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US : Nasdaq
15,043.97
-137.96 -0.91%
Volume: 6.16M
Sept. 17, 2021 5:16p
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US : U.S.: Nasdaq
$ 146.06
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Volume: 129.87M
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P/E Ratio
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0.60%
Market Cap
$2414.40 billion
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US : U.S.: Nasdaq
$ 3,462.52
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N/A
Market Cap
$1753.56 billion
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US : U.S.: Nasdaq
$ 2,816.00
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P/E Ratio
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N/A
Market Cap
$1881.83 billion
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$1.35M
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US : U.S.: Nasdaq
$ 219.00
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Sept. 17, 2021 4:00p
P/E Ratio
78.18
Dividend Yield
0.07%
Market Cap
$545.75 billion
Rev. per Employee
$878,788
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/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 299.87
-5.35 -1.75%
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P/E Ratio
37.23
Dividend Yield
0.83%
Market Cap
$2253.49 billion
Rev. per Employee
$928,663
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US : U.S.: NYSE Arca
$ 121.50
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Volume: 7.75M
Sept. 17, 2021 4:00p
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US : U.S.: Nasdaq
$ 373.83
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Volume: 60.91M
Sept. 17, 2021 4:00p
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US : Kraken
0.22
-0.02 -7.92%
Volume: 11.00M
Sept. 20, 2021 4:17a
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US : Dow Jones Global
34,584.88
-166.44 -0.48%
Volume: 577.97M
Sept. 17, 2021 5:25p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,432.99
-40.76 -0.91%
Volume: 3.79B
Sept. 17, 2021 5:25p
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US : Nasdaq
15,043.97
-137.96 -0.91%
Volume: 6.16M
Sept. 17, 2021 5:16p
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XX : STOXX
453.40
-8.44 -1.83%
Volume: 0.00
Sept. 20, 2021 10:03a
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UK : FTSE UK
6,861.43
-102.21 -1.47%
Volume: 113,670
Sept. 20, 2021 9:03a
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FR : France: Euronext Paris
6,412.95
-157.24 -2.39%
Volume: 17,891
Sept. 20, 2021 10:03a
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DAX
DX : Xetra Indices
15,161.34
-328.83 -2.12%
Volume: 18,974
Sept. 20, 2021 10:03a
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JP : Nikkei
30,500.05
+176.71 +0.58%
Volume: 0.00
Sept. 17, 2021 3:15p
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HK : Hong Kong Exchange
24,099.69
-821.07 -3.29%
Volume: 2.49M
Sept. 20, 2021 4:03p
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/zigman2/quotes/210598127/delayed
CN : China: Shanghai
3,613.97
+6.87 +0.19%
Volume: 51.69B
Sept. 17, 2021 3:01p
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