[Chart courtesy of MarketWatch.com]

1. Moving the markets

The Nasdaq and S&P 500 saw a modest rebound early in the day, with the Nasdaq attempting to recover from its worst decline in two years. However, by midday, a wave of selling pressure hit the markets, leading to a significant downturn, with the Dow suffering the most.

The sell-off in tech stocks continued, driven by the increasing likelihood that the Federal Reserve might ease off on raising interest rates in September. While this had previously supported the broader market, today saw a widespread decline across all asset classes, including Small Caps, which turned traders’ screens into a sea of red.

Over the past five trading days, Small Caps have surged more than 7%, while the tech sector has dropped over 4%. Today’s broad market plunge has raised concerns about whether the high levels of the major indexes are justified given the current weak economic environment.

Jobless claims have now rebounded to their highest levels since August 2023, and continuing claims have spiked to levels not seen since November 2021. This is troubling news for American workers, but it remains to be seen if Wall Street will interpret this “bad” news as “good” news for the markets.

The MAG7 stocks fell to their lowest levels in a month, and the recent short squeeze lost momentum for the second consecutive day. Bond yields edged higher, gold prices declined, crude oil traded erratically, and Bitcoin struggled to gain traction. However, the dollar managed to recover from its recent slump.

Given these developments, I am wondering if current market levels are sustainable, or are we headed for a more significant correction?

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Today’s market saw a continued rotation out of the tech sector, with the S&P 500 and Nasdaq retreating once again. The Nasdaq experienced its worst day in 19 months. Meanwhile, the Dow managed to stay above its unchanged line, eking out another green close.

Tech giants like Apple, Netflix, Microsoft, and Meta each lost more than 1%. Given their recent impressive runs, this is only a modest correction. Nvidia, however, dropped 6%, with semiconductors facing their most significant decline since the COVID-19 lockdowns. Traders shifted their focus to Small Caps, which had rallied recently but closed lower yesterday.

Even the MAG7 stocks were hit hard, losing an astounding $1.1 trillion in market cap. Despite this, the losses are minor compared to the sector’s overall gains.

Anticipation that the Federal Reserve might lower rates has buoyed Small Caps, as lower financing costs could be beneficial. Futures markets currently imply a 100% likelihood of the Fed lowering rates in September.

The recent short squeeze reversed, bond yields were mixed, and rate-cut expectations held steady but increased for 2025. The dollar dropped to a two-month low, while crude oil recovered from its recent slump, heading towards the $83 level. Bitcoin took a breather from its recent surge, as did gold, with the precious metal coming off its all-time high.

While the bulls remain in control, economic weakness is spreading, which could be reflected in the upcoming earnings season. The extent of this impact will likely determine the future direction of the market.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The rally broadened today with the Dow reaching record territory, while the Nasdaq lagged. A rotation out of tech and into Small Cap stocks continued, at least for now. Nvidia slipped about 2%, while Tesla and Meta each dropped over 1%.

A massive short squeeze provided a significant boost, with the most shorted stocks rallying for 10 consecutive days, marking their biggest advance in about four years. Small Caps also set a record, achieving the largest five-day outperformance over the S&P 500 since late 1987.

Banks like Bank of America and Morgan Stanley advanced due to better-than-expected earnings, as the reporting season gains momentum. Traders are highly optimistic about this earnings season.

Retail sales were unchanged from June, surprising economists who had anticipated a 0.4% decline. Excluding autos, sales rose 0.4% compared to a 0.1% forecast. Traders concluded that consumers were not buckling under pressure as widely expected.

Bond yields fell despite stronger-than-expected retail sales numbers. The dollar remained stable, while oil prices dipped but managed to stay around the $80 level.

Bitcoin continued its rebound, surpassing the $65k mark. Gold not only hit a new all-time high but also competed closely with the Dow for the session’s top performer. The Dow edged out a win, gaining 1.85% compared to gold’s 1.83%.

However, the significant gap between gold and the 10-year yield suggests that gold might be anticipating some kind of crisis.

Continue reading…

2. Current “Buy” Cycles (effective 11/21/2023)

Our Trend Tracking Indexes (TTIs) have both crossed their trend lines with enough strength to trigger new “Buy” signals. That means, Tuesday, 11/21/2023, was the official date for these signals.

If you want to follow our strategy, you should first decide how much you want to invest based on your risk tolerance (percentage of allocation). Then, you should check my Thursday StatSheet and Saturday’s “ETFs on the Cutline” report for suitable ETFs to buy.

3. Trend Tracking Indexes (TTIs)

The rotation out of tech continued unabated and propelled the broad market higher with Small Caps taking top billing.

Our TTI’s joined the party with especially the domestic one scoring a solid gain.

This is how we closed 07/16/2024:

Domestic TTI: +9.01% above its M/A (prior close +7.17%)—Buy signal effective 11/21/2023.

International TTI: +8.78% above its M/A (prior close +8.20%)—Buy signal effective 11/21/2023.

All linked charts above are courtesy of Bloomberg via ZeroHedge.

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Do you have the time to follow our investment plans yourself? If you are a busy professional who would like to have his portfolio managed using our methodology, please contact me directly to get more details.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The major indexes advanced early on as traders did not see any adverse effects from the Trump assassination attempt. In fact, the opposite happened with the general viewpoint being that this event could even further propel Trump’s popularity in the polls.

Most of Wall Street’s preoccupation was the barrage of incoming earnings this week. Some insurers like Humana and United Health Group rose, because a Trump presidency might benefit them due to less cost pressures from a Republican Administration. At least, that’s the theory.

Despite the broad markets scoring a green close, prices came off their early highs. However, Trump’s media stocks soared, as Small Caps and the energy sector outperformed, while bond yields rose slightly.  

The real action happened in Bitcoin, with its ARKB ETF soaring over 10% during the session. Gold followed suit and raced to within striking distance of its record high. Crude oil did not keep up with energy prices and slipped below its $82 level.    

ZH pointed out that futures traders have never had as many long positions as they have today.

Makes me ponder how long that can continue before reality kicks in.

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