Only One Can Be Right... Who’s It Going To Be?
It is a very strange market…
Small Caps (otherwise known around MarketGauge as Grandpa Russell) were down almost -1.34% for the week, bucking the new all-time highs in both the QQQ’s which was up + 2.6%, and the SPY which was plus 1.67%.
Growth stocks continued leading the charge.
What is interesting is that despite the stellar performance by the SPY and growth stocks, is that market internals barely budged. They remained neutral. This indicates that last week’s move up was focused on just a few big cap growth/technology names that carry a disproportionate amount of weight within the S&P 500 index.
Despite low rates, High Yield Debt (HYG) continues to underperform the safety of the U.S. Long Bond (TLT).
We follow this relationship in the “Risk Gauge: More Ratios” section of BigView Premium because a trend like the current one is indicative of a Risk-Off mindset that is typically bearish for stocks.
Credit markets are often considered smarter (or one step ahead of) the equity markets, so the HYG/TLT trend could be foreshadowing a sell-off. Keep an eye on it.
In summary, the big question we believe traders should be focused on right now is, will the credit markets prove right in predicting a crash?
Keep your eye on activity in both credit and equity markets in the coming weeks to see which is right, because right now they’re contradicting each other.
There are two ways we will be following this important inter-market relationship and all the other reasons that drive the market’s major trend…
- Mish’s Daily newsletter and her premium trades via Mish’s Ultimate Trading Program.
Last week Mish revealed how she’s going to navigate the current market conditions with the same success she’s had over the last 40 years in this free webinar.
- Our Alpha Rotation trading system does all the inter-market analysis for you to determine when you should buy the stock market or buy the bond market based on the Risk Gauges that we reference in this Market Outlook blog post almost every week. If you’d like to learn more about our Alpha Rotation system click here.
This week’s highlights are the following:
- Risk Gauges remain Risk-On
- Volume patterns improved to neutral with only 1 distribution day vs. 8 accumulation days across all 4 indices over the last 2 weeks
- Small Caps (IWM) were down on the week, unable to make a new high like Nasdaq 100 (QQQ) and the S&P 500 (SPY)
- Dow (DIA), Mid-Caps (MDY), and Small-Caps (IWM) are all under pressure relative to the S&P 500 (SPY) and Nasdaq 100 (QQQ) which are predominantly led by a handful of Large-Cap names
- 52-Week New Highs in the SPY seems to be running out of steam along with the McClellan Oscillator which is still giving a neutral reading
- SPY is getting overbought and outside its upper Bollinger band, and the number of stocks above the 10-dma is starting to get frothy
- Long Bonds (TLT) are remaining firm despite (rates dropping) inflationary pressures
- High Yield Debt (HYG) is lagging vs. Treasuries (TLT). This is a risk-off scenario
- Short-term bonds (SHY) bounced off oversold levels, but is still under tremendous pressure and in a bear market
- Growth (VUG) continues to outperform Value (VTV)
- Commodities performed well across the board on the week, led by Corn (CORN)
- Natural Gas (UNG) continues to defy its seasonal swings, up 4.79% on the week
- Technology (XLK) and semiconductors (SMH) were the leading sectors on the week
- Transportation (IYT) once again lagged, and it remains in a warning phase
- Regional Banks (KRE) are also in a warning phase
- Agricultural (DBA) is lagging SPY
- The short-term technicals look better on Gold (GLD), but there is major resistance at the 50 and 200-DMA’s
This Week in Crypto:
- The most notable news event this past week was the crackdown on Binance (the world’s largest crypto exchange by volume) in countries across the world. This was most notable in the UK due to the accusation of it illegally offering crypto derivatives.
- Despite the Binance news shining a light on the potentially negative governmental sentiment toward the crypto industry, this week saw an overall crypto market cap jump of 20% over a 7-day period due to increased demand by new buyers.
- Ethereum (ETH) led Bitcoin (BTC) this week, with a 7-day increase of 26% vs. 10.5% in Bitcoin (BTC).
- Ethereum (ETH) is looking to get back above its 100-DMA which was violated 2 weeks ago for the first time since May of 2020.
- Over the past 6 weeks the number of active BTC wallets has decreased by 60%, with ETH wallets taking the lead. Monitor this situation and other blockchain metrics in the coming weeks to determine whether Bitcoin or Altcoins will lead a potential crypto market recovery.
This Week's Free Market Outlook Video: