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I spent all of final week within the media and in print, going over the significance of two key indicators. (See the media clips beneath)
Our danger gauges on Huge View, all of which saved flashing danger on whatever the doom and gloom and preliminary unload in bonds and SPY.
The month-to-month charts on small caps and retail (IWM and XRT), each of which drew strains within the sand.
Though we now have not modified our thoughts about the true chance of stagflation as we head into 2024, ( and 2 commodity ETFs proceed to outperform the ), this clutch rally on Friday within the face of a robust employment report, was not surprising.
Final week we wrote this:
“Now, together with Retail , each and XRT-Granddad and Grandma of the Financial Fashionable Household-have a brand new story to inform.
The 80-month transferring common (inexperienced line) is a longer-term enterprise cycle or about 6-7 years.
In addition to the blip throughout covid, IWM has not BROKE that 80-month MA since 2010. XRT sits proper above the 80-month.”
The day prior on the danger gauges we wrote this:
“In case you are discovering your self fluctuating between bullishness and bearishness, then congratulations!
Hopefully, that additionally means you might be ready for sure indicators that will help you commit to 1 means or one other.
Listed below are the indicators we’re ready for earlier than overly committing to a bias.
As we wrote over the weekend, how the junk bonds (excessive yield excessive debt bonds), do independently, and the way they carry out towards the lengthy bonds (TLT).
How the retail and transportation sectors do (together with small caps) as they symbolize the “inside” of the US economic system.
How DBA (ags) and DBC (commodity index) do relative to the sturdy greenback and better yields.”
For those who mix the rally on Friday, with the notion that our danger gauges stayed optimistic, the larger query now is-
What’s Subsequent?
Recession to us, can be represented by a break of the 80-month transferring common in both IWM or XRT and stronger if in each.
And, as a lot as all of us love the save on Friday, the TLT closed down once more, or bond yields rose.
Small caps (IWM) nonetheless closed down for the week as did Retail (XRT).
SPY and NASDAQ QQQ, nonetheless, closed the week larger.
Can that assist maintain the small caps and retail from failing the 80-month transferring common?
Possibly.
DBA closed unchanged. DBC closed a lot decrease due to the drop in oil costs. Commodities stay elevated regardless.
So the large questions for this week are:
Can development shares increase the small caps, or will small caps drag the whole lot down once more?
Can the danger gauges keep risk-on particularly if bonds reverse in any respect and SPY begins to underperform?
Can junk bonds proceed to carry and outperform lengthy bonds?
We wish to see IWM get again over 177 and Retail get again over 61.00.
In any other case, the primary query will almost certainly be answered by no-this rally can’t be sustained.
It appears the market took the roles report as a peak in employment for 2023 — and it appears that evidently the bond market didn’t take it that means.
We’re nonetheless at a precipice.
Bulls must see the bond market regular and small caps enhance. The bears must see larger for longer and small caps fail the 6–7-year enterprise cycle.
Commodities merchants must see oil rebound, continues the rally, DBA develop some extra inexperienced shoots, the to fail 106, and yields to a minimum of, not go up any farther from right here.
ETF Abstract
S&P 500 (SPY) There are a number of timeframe assist ranges spherical 420-415
Russell 2000 (IWM) 170 space large
Dow (DIA) 334 pivotal
Nasdaq (QQQ) 330 attainable if can’t maintain above 365
Regional banks (KRE) 39.80 the July calendar vary low
Semiconductors (SMH) 133 the 200 DMA with 147 pivotal resistance
Transportation (IYT) 237 resistance 225 assist
Biotechnology (IBB) 120-125 vary
Retail (XRT) 57 key assist if can climb over 61, get bullish
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