Fill it Up, Please

May 3, 2020

Weekly Market Outlook

By Keith Schneider

After devouring the bears this month (+13% on average), the bulls needed some Tums to digest overeating this week. What happens next seems to be a coin toss.

However, two things are clear. First, there has been a rotation to small caps, and second, any country that intelligently navigates the Covid-19 virus will reap the rewards financially. So far, the winner is Taiwan by a large margin because it was out front in its early response to the virus.

Oil prices at zero is not a sign of a robust economy. Along with the Transportation sector lagging, this shows the rally is not on good footing, despite all the helicopter money.

This week’s highlights are:

• Risk Gauges are still positive but are looking vulnerable
• Grandpa Russell (IWM) closed up +2.2% for the week while other key US indexes closed marginally down
• Volume is confirming the rotation into small caps (IWM)
• Leading spec sectors Sister Semis (SMH) and Biotech (IBB) are showing fatigue
• Risk-off sectors such as Utilities (XLU) and Consumer Staples (XLP) underperformed yet again
• Gold and Bonds, both Risk-off plays took a breather, digesting large gains this year
• VXX (Volatility) tested the lower end of its Bollinger bands and bounced, showing the bear market is likely intact (at least longer term)
• All key indexes closed beneath their key short-term moving averages and the NASDAQ 100 lost its bull phase
• Soft Commodities (DBA) could be bottoming