As the Wind Blows
US Equity markets are all in see-saw patterns now, pushing up and down into resistance and support.
This action exemplifies an uncertain economic environment whereby one indicator can come out positive and the next day another indicator or economic number will come out and tell a completely different story.
This see-saw is not surprising for a “reopening economy” where daily economic indicators are much larger than normal and therefore will create bigger swings.
Interestingly, volatility remains low and suggests that there is not yet fear in the market. This is something our own Mish discussed on a Zoom presentation she gave for UBS Television this past week.
Moreover, it is critical to have reliable consistent data which is why we built “Big View” and our quantitative models which help us maneuver with little to no emotion. We must watch the Risk Gauges, and our proprietary indicators to interpret what markets are telling us and then take appropriate action.
This week we moved to cash in one of our Alpha Rotation models and are now waiting until the wind settles down to find a new trend to take advantage of.
In the meantime, we remain defensive on some of our models as preserving capital and mitigating risk has been and will continue to be our calling.
This week’s highlights are the following:
- Risk gauges are showing a weak neutral reading
- Gold (GLD) has been outperforming the S&P500 (SPY), and one key intermarket relationship, the SPY vs XLU on the verge to risk-off. Lumber (WOOD) as well, showing market stress is beyond just inflationary pressures.
- 3 of the 4 Indices were down marginally, with the NASDAQ 100 (QQQ) and Grandpa Russell (IWM) closing the week under their 50-DMA’s, and in warning phases.
- Real Motion indicates that longer-term momentum in the major indices is turning down especially in the Russell 2000 (IWM)
- The S&P500 (SPY) market internals have moved back to neutral to slightly positive
- Large-Cap value stocks are leading over Mid and Small-Caps
- 4 of the 6 members of Mish’s Modern Family closed under their 50-DMAs into warning phases.
- Retail (XRT) and Transportation (IYT) gave up ground this week relative to the S&P 500
- Biotech (IBB) saw a solid bounce off its 200-DMA and needs to clear its 50-DMA and move to a bullish phase
- SMH was an excellent performer for the week but still closed under its 50-DMA, so whichever way it breaks will give insight into the direction of the overall market.
- Emerging Markets (EFA) are outperforming US Equities.
- Cooper (CPER) is still in an overall bullish mode but has run ahead of itself and is undergoing a bit of mean reversion.
- Gold (GLD) has broken above its 200-DMA but running a bit rich.
- The Dollar’s (UUP) downtrend still intact, hitting important resistance on a trendline that started in early 2021.
- Volume patterns are extremely weak with only one accumulation day across all 4 US indices over the past 2 weeks.
- Cryptocurrencies led by Bitcoin have seen a market-wide crash this week, with an April 14th ATH (all-time high) of just under $65,000 to a 2021 low around $28,000.
- BTC has broken under its 200-DMA and is now struggling to get back above its 10-DMA.
- There appears to be an inverse relationship emerging between BTC and GLD
- What seem to have been the main 3 catalysts of this week’s crypto correction are Elon Musk's continual prodding via twitter, China's crackdown on cryptocurrency investments and services, and US speculation that has continually built in-anticipation of regulatory and taxation moves by the Biden administration.
- Blockchain Analysis from this week’s drop indicates that those who joined the crypto market in the latter half of this bull market were predominantly the ones that sold off their holdings, while long-term investors mostly held firm
- Looking forward, this crypto correction may not be done yet and we are expecting potential support to emerge at around $20,000.