Equities had a banner week with both the S&P 500 and the NASDAQ 100 hitting new highs, however under the hood we are getting a mixed message.
Since the beginning of the year, we have seen strange, new trends emerging in both traditional and alternative markets. Cryptocurrencies have been dominating the news cycle since last September, and ‘Meme’ stocks have emerged from the retail collectivism that has transferred from the crypto market to stocks. However, like most things in this world these trends have an undetermined shelf-life and cannot simply go on forever.
When money flows out of cryptocurrencies, it has been moving into classic equities and has recently shown up in growth stocks. However, there are still blatant structural problems in the stock market that cannot be simply fixed with an inflow of capital from the crypto market.
Structurally speaking, a Dow Theory sell signal has emerged with the transportation sector (IYT) lagging, weak volume patterns, and market internals neutral at best. So, it is not surprising that Transportation sector is the focus of the Biden administration new spending bill as much of the nation’s infrastructure is badly in need of an update. It’s critical as our economy depends on it.
This Week’s Highlights are the following:
- Risk Gauges moved to full risk-on
- Volume analysis shows that despite this week’s rally, volume is unconvincing with 5 distribution days in IWM, and 4 distribution days in SPY over the last two weeks
- Only Nasdaq (QQQ) is showing a roughly even accumulation/distribution volume.
- McClellan Oscillator shows a neutral reading for the S&P 500 (SPY) despite closing at new all-time highs
- Short-term sentiment indicators have improved without being overbought in SPY
- Interest Rates, especially the long bond (TLT) got overbought and are mean reverting
- Gold (GLD) remains in a Bearish phase after last week’s drop
- Copper (CPER) remains in a weak Warning phase with the potential to run up
- Value (VTV) saw a harsh breakdown this week in opposition to Growth’s (VUG) continued uptrend to new all-time highs
- The Modern Family is under a cloud, as Transportation (IYT) continues to struggle
- Utilities (XLU) were the only sector down on the week, and Consumer Staples( XLP) indicating risk-on
- Energy (XLE) and Retail (XRT) are leading this week, with Natural Gas breaking its bearish seasonal patterns
- The US Dollar (UUP) has paused at the 200-dma, and will likely see a significant move (to be determined which way) once this current compression pattern is resolved
- Although previously housing roughly 65% of the overall hash rate (computing power) for the Bitcoin network, China has made the move to outlaw domestic cryptocurrency mining operations.
- Chinese mining facilities are now selling their mining equipment to companies based in the US and Europe, when just a few weeks ago there was a worldwide shortage of microchips and other crypto mining components.
- The ability to purchase mining equipment at a discount on the resale market has helped publicly-traded mining companies like RIOT, MARA and HUT mitigate their overhead costs, which would explain these companies' positive performances on the week (ranging from +2.5-8.5%) against a 12% drop in BTC's price performance.
- Bitcoin is close to regaining 50% dominance of overall cryptocurrency market cap. BTC has continued to lead the volatile trends of the space, with Ethereum and the majority of other altcoins having a slight lag but a tight correlation to BTC's momentum swings.
- This week saw BTC test resistance at $41,000 before sharply selling off to test $29,000, respecting the $28,000 support level dating back to the May crypto crash. This $28,000-$41,000 trading range has held since BTC's 2021 low on May 18th, allowing volatility traders to take advantage of the current setup until one of these levels is broken.