Evergrande Gap: Warning or Missed Opportunity?
Last week began with fears on an Evergrande (China’s leading property developer) debt default fueling a technically damaging gap down. The Monday morning gap put the SPY and QQQ well below their 50-day moving averages (DMA), the IWM well under its 200-DMA, and China’s large-cap ETF (FXI) at a new 52-week low.
Global equity markets recovered quickly with the US equity benchmarks leading, and more specifically led by Grandpa Russel (IWM), which closed up +2.79% for the week.
US equities also shrugged off the possibility of a debt default by the US.
The bounce was aided by some additional fuel from being oversold last week, and it’s currently mean reverting.
So, the big question remains…
Is this primarily a technical bounce that will run out of steam shortly or the start of a more substantial move that will carry to new highs?
Is the energy sector which led this week (XLE +7.8%) indicating a robust economic recovery?
This Week’s Market Highlights:
- Risk Gauges have moved back to full Risk-On
- Major indices got oversold and are in mean reversion mode
- The longer-term trends for the major indices are still intact based on weekly charts
- Volume analysis shows a shift back into neutral mode from heavy selling over the past two weeks
- The 4 key indices were all up at least 2% over the past 5-trading days. However, they are still down roughly 1.5% over the last month
- Market internals, including the McClellan indicator on SPY has bounced off very oversold levels and is now back in positive territory
- Small-Caps (IWM) and Mid-Caps (MDY) regained their 10-Day Moving Average, 50-DMA, and 200-DMA placing them back in bullish phases
- SPY moved back into a bullish phase as of Friday’s close by clearing its 50-DMA
- Volatility (VXX) shows sentiment moving back into Risk-On mode
- Value (VTV) continues to lag Growth (VUG)
- Semiconductors (SMH) and Biotech (IBB) continue to be the leaders of the Modern Family
- With interest rates under pressure Regional Banks (KRE) are looking strong, regaining a bullish phase
- Compared to foreign equities (EEM & EFA), the US (SPY) has regained its leadership
- Gold (GLD) remains under quite a bit of pressure, and in a bear phase
- The Energy sector including natural gas (UNG) and crude oil (USO) is leading the market
- Crude Oil (USO) has reached its highest levels since March of 2020
- Long Bonds (TLT) drastically failed this week as it attempted new highs, likely beat up by taper talks
- Despite the Evergrande fiasco, China (FXI) closed +0.13% on the week
This Week’s CryptoPulse Highlights:
- For the third time in 2021, China has declared another widespread cryptocurrency ban. This time, China is outlawing foreign exchanges from serving Chinese traders.
- Both Bitcoin (BTC) and Ethereum (ETH) are down over 10% for the last 7-days
- There are still booming tokens in the Decentralized Finance space as Avalanche (AVAX) and Tezos (XTZ) both gained over 6% on the week despite Ethereum's drawdown.
- Despite going mainstream by being listed on Coinbase for trading, Shiba Inu (SHIB) suffered a 14% drop on the week
- Watch for BTC to hold the $40,000 support level, and for ETH to regain the $3,000 level before Monday