Here are three charts, one of SPY, the other QQQ, and the last is IWM. Take a look at each of the candles highlighted in the green boxes. Notice on that month, we saw a harsh decline in all three indices, but IWM behaved differently.
We talk about the catch up trade for small caps and the great rotation out of mega caps into smaller companies. Although there is money flow allocation throughout these indices, how sustainable is it? If we look at 2008's rotation, small caps saw an incredible increase in demand before turning back the other way. IWM hit an all time high before ending the month at a major loss. It seemed that the big names fell initially, but small caps suggested there was a rotation going on. This only took investors by surprise when everything dropped, and the rotation was not within the market, rather, it was just completely out of the market.
We talk about the catch up trade for small caps and the great rotation out of mega caps into smaller companies. Although there is money flow allocation throughout these indices, how sustainable is it? If we look at 2008's rotation, small caps saw an incredible increase in demand before turning back the other way. IWM hit an all time high before ending the month at a major loss. It seemed that the big names fell initially, but small caps suggested there was a rotation going on. This only took investors by surprise when everything dropped, and the rotation was not within the market, rather, it was just completely out of the market.
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Now let's take a look at this month's price performance.
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They say history doesn't repeat itself, but it can rhyme. This time around, the SPY is still green, but the QQQ is turning red on an inverted hammer candle for the month (pretty bearish sign should the candle close in that fashion, but we still have a few weeks left in the month).
IWM, however, looks like it's doing the same thing as that September in 2008. Maybe the small cap index touches new highs, or maybe it pulls back like the big tech market. The reason I'm watching these market with caution is because this "catch-up" trade that everyone is so eager to be in, could be a trap.
I think it's reasonable to finally see the small caps finally moving with the rest of the market, but it could be the last part of this melt-up before some kind of correction. Time will tell as the month wraps up.
IWM, however, looks like it's doing the same thing as that September in 2008. Maybe the small cap index touches new highs, or maybe it pulls back like the big tech market. The reason I'm watching these market with caution is because this "catch-up" trade that everyone is so eager to be in, could be a trap.
I think it's reasonable to finally see the small caps finally moving with the rest of the market, but it could be the last part of this melt-up before some kind of correction. Time will tell as the month wraps up.
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At +9, the blue chips look to have the most demand out of the rest of the market. After the market's worst performing week in several months, stocks show signs of a rebound. Although it is still too early to tell, we can watch how this week unfolds if this 2.8% retracement is all we will see.
It seems that a high probability of Trump winning the presidential race could be good for the stock market. I would expect some more volatility in the coming days as a result. COT data showed us a positive change in DOW and RUSSELL which could indicate increased bullishness in these two indices.
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It seems that a high probability of Trump winning the presidential race could be good for the stock market. I would expect some more volatility in the coming days as a result. COT data showed us a positive change in DOW and RUSSELL which could indicate increased bullishness in these two indices.
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Gold is on its fourth daily losing streak as risk-off sentiment dwindles. This could be a result of Biden's recent drop out. The reaction of this news has caused a stronger dollar today, and oddly enough, higher yields on the US02Y.
If price continues lower, we can expect a test around $2,360s or even the $2,300 level which is the bottom of a long term channel on the 1D timeframe. Gold's price is already 4% off the highs in only a matter of days. The metal is still a +6 on the EdgeFinder.
If price continues lower, we can expect a test around $2,360s or even the $2,300 level which is the bottom of a long term channel on the 1D timeframe. Gold's price is already 4% off the highs in only a matter of days. The metal is still a +6 on the EdgeFinder.
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NASDAQ 1D Chart:
Nice start for a potential bounce here on NAS at this support level on the daily chart.
If this level holds, I will look to trail stops. If this level breaks, I will stop out and look for a better entry at lower prices.
Here are a few things on the fundamental front I am seeing that are keeping me bullish.
1. Inflation data cooling closer to the fed's 2% target. This could suggest that interest rates could ease this year, which could spur growth in the economy.
2. Jobs data cooling (but not crashing), contributing towards inflation coming down
3. Oil prices are down, helping with inflation as well due to lowered transportation costs
4. The odds for Trump to return to the white house have increased significantly. His policies are generally considered "pro business", and include tax cuts for businesses. This could lead to stock buybacks & further investment into technological advancement.
- Nick
Nice start for a potential bounce here on NAS at this support level on the daily chart.
If this level holds, I will look to trail stops. If this level breaks, I will stop out and look for a better entry at lower prices.
Here are a few things on the fundamental front I am seeing that are keeping me bullish.
1. Inflation data cooling closer to the fed's 2% target. This could suggest that interest rates could ease this year, which could spur growth in the economy.
2. Jobs data cooling (but not crashing), contributing towards inflation coming down
3. Oil prices are down, helping with inflation as well due to lowered transportation costs
4. The odds for Trump to return to the white house have increased significantly. His policies are generally considered "pro business", and include tax cuts for businesses. This could lead to stock buybacks & further investment into technological advancement.
- Nick
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A note on the political side: I am not necessarily saying Trump is good or bad for the overall economy, but for stocks it is pretty well accepted it could lead to stock prices to rise. - Nick
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Interest rate sensitive assets like the RUSSELL could be highly reactive to Biden's leave. PMIs are holding the score back from a strong bullish reading. Unemployment rate is higher above 4% too. The index actually saw the most long positions added to it than any other asset on the EdgeFinder.
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Retail suggests bearishness on the indices, metals and oil. Gold is mixed with the DAX and DOW. USD pairs are scattered around the spectrum.
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COT is showing gold as the top bullish asset although there was a change in last week's positioning to the downside. NIKKEI and RUSSELL were the strongest changes to the upside. The 10 year bond note saw an aggressive sell off as well. With gold and bonds at the bottom of the list, this could be another sign of risk-appetite increasing.
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Retail sales are not impressive in the US. However, seeing this trend has been flat for a few months, it may help inflation continue lower which is still hovering above 3%. PMI and GDP numbers come out this week and will further indicate Fed cues on interest rates in September.
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Here are my general thoughts on a possible Trump presidency:
I do think stocks could continue higher due to his proposed business tax cuts & perceived pro business policies.
A Trump presidencies' impact on inflation & the economy is hotly debated, and I can't say for sure what I think his policies would do.
If I had to guess, business strength and GDP might grow, but inflation and national debt may also rise.
I lean bullish on gold & stocks. - Nick
I do think stocks could continue higher due to his proposed business tax cuts & perceived pro business policies.
A Trump presidencies' impact on inflation & the economy is hotly debated, and I can't say for sure what I think his policies would do.
If I had to guess, business strength and GDP might grow, but inflation and national debt may also rise.
I lean bullish on gold & stocks. - Nick
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