July 6, 2020
By Mish Schneider
While there was a big boost from NASDAQ on Monday, the “inside” sectors are not yet believing the tech sector tells the whole story.
For example, the financial sector continues to underperform SPY and tech-partly because of the lower dividends, inability to buy back their own stocks but also as a general concern for the overall economy and that the public is saving more and borrowing less.
This week is critical for the financial sector and especially the next 2 weeks as earnings season begins with the banks.
Transportation sector also well underperforming, but at least showing some promise as airlines have rallied a bit. The hopefulness of the economy moving again has to reflect in goods and people moving again.
The small caps or Russell 2000 are also lagging-with 2000 stocks mainly in the manufacturing industries.
This “supply” side index has to hang in there as well-even with the improvement in the non-manufacturing index-the small caps barely rose.
Retail-especially brick and mortar retail shows the most promise and the only reason to believe the market and the economy will continue to have legs.
But again, as retail has been behind for years, I would have to see some real leadership as we are still a consumer-based economy.
Volatility, even with NASDAQ's new highs, also holding up today-so the fear is still there and legitimately so.
Since the early start to the day, the market including NASDAQ sold off.
The market is not just about COVID and rising cases as the death rate remains low-but also social unrest, the upcoming election which is sure to bring volatility possibly engendering more protests with the ever-widening divide between the richest and poorest Americans.
COVID cases should not shut down the already opened businesses. And the silver lining is that more might take the social distancing and mask wearing seriously. But what the market cannot afford is a new shut down or out of control spike in deaths. That remains an X factor
Another factor is China, the trade deal and the dollar. For one, China sanctioned that their stocks should be bought-even the Fed here does not do that!
China is bolstering the YUAN while the US dollar falls. Any risk of the dollar losing its world reserve currency status would be devastating.
On the Buffett deal and natural gas-that traded to its lowest levels, so the investment is smart. Moreover, it is more of a confidence in a commodity rather than the economy.
Stagflation is on the way-gold and silver showing it-plus food future levels have bottomed-especially the grains
We are still at historical levels as far as the stocks to commodities ratio-and that will continue to reverse that ratio with food hoarding, de-globalization, low supply chain and smaller labor force.
Russell 2000 (IWM) 141 support 146.50 resistance
Dow (DIA) Sitting on the 200-DMA-must stay there
Nasdaq (QQQ) Rockets propel on bubbles…fun if you’re in it-
KRE (Regional Banks) Inside day, inside week-this has to hold up-and could be a great trade into earnings if does
SMH (Semiconductors) 155 support-160 target
IYT (Transportation) 161.50 pivotal support 170 resistance
IBB (Biotechnology) 136-141 range now
XRT (Retail) 43.40 huge support to hold
Volatility Index (VXX) 31.00 support and over 32.70 troubling
Junk Bonds (JNK) 104.50 resistance 101.50 support
LQD (iShs iBoxx High yield Bonds) New highs-watch 134.90
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