Last week’s move to new all-time highs in both the S&P 500 (SPY) and the Dow Industrial (DIA) masked deteriorating underpinnings as both the iShares Russell 2000 ETF (IWM) and the Invesco QQQ Trust (QQQ) lagged.
Values stocks led the run-up once again while big cap NASDAQ stocks remained stuck in first gear. In fact, the once leading NASDAQ 100 was down -1.12% for the week, and was lagging on year-to-date performance by more than 6% against other key equity indexes.
Our Alpha rotation model took advantage of the run-up by taking partial profits in SPY and moving up stops. Also noteworthy is the fact that the dollar got smoked, while all commodities ripped higher—including soft commodities, gold and silver.
It’s starting to feel a bit like the 70s, only this time the stakes are higher as central banks, fiat currencies, and the current world order is under attack. Global Government debt verses GDP is at record levels as banks and governments are operating as if the real world is a Monopoly game.
Most disturbing is that the dollar is getting hammered despite rising rates. The Fed is now stuck between a rock and a hard place, as higher rates that are needed to combat inflation could unhinge equities.
Just talk to most Cryptocurrency supporters and they will tell you that Crypto and Blockchain technologies are the perfect replacement for the broken banking system. Of course, do not mention Crypto to Warren or Charlie.
Last week’s highlights
- Across the 4 major indices the Dow Jones Industrials (DIA) and S&P closed the strongest, with NASDAQ down 1% on the week showing a rotation in the indices.
- On weekly charts, QQQs were hanging on while SPY was seeing healthy growth. DIA was running a bit rich with a move up last week.
- Volume showed improvement from negative to neutral across major indices.
- For the week, Utilities backed off and underperformed stocks, which is a Bullish intermarket relationship for the stocks.
- Technology and Semiconductors continued to underperform against the S&P benchmark
- Energy and homebuilders are the two strongest sectors, signaling mounting inflationary pressures
- Risk Gauges improved to Risk-On.
- VXX came off 8.42% over 5 days, a positive development for the market as a whole
- USD was down 1.26% over the last 5 days, the lowest since late February. If USD continues to drop, it will slide to its lowest levels since April 2018
- Positive sentiment on SPY with McClellan oscillator turning positive at end of the week.
- TLT had a bearish engulfing pattern and despite a poor unemployment report, bonds were still in a weak recovery phase with inflationary pressure weighing in.
- Big cap DIA value-stocks were outperforming, while small caps that were previously strong were under pressure. The baton was being passed from growth to value stocks.
- XRT looked to be holding over its 50- and 10-DMA; in a compression configuration looking to breakout.
- IBB could breakdown into a distribution phase if it cannot hold over 200-DMA.
- KRE potentially helped by the prospect of higher rates looked poised for continued strength.
- Commodities were all looking poised for more upside as inflationary pressures continue.
- Gold had a strong week; look for confirmation of a bullish breakout this week if price takes out the 200-DMA and a critical trend line.
- Look for silver to continue to outperform vs. gold if inflationary pressures remain intact.