Rotation Report: Groundhog Day

I noted in this week's Top Trading Links it feels like Groundhog Day.  It seems like every weekend is the same story.  Market at the highs, VIX in the 12's with range-bound principles winning.  Is this week different though?

The interesting phenomenon of last week was how the indices held support until bears puked on themselves.  The big hint of a rally came as a confluence of factors occurred Thursday morning

• Growth names did their own thing for the first time in awhile.
• The market reversed a large pre-market loss.
• Any slight down tick in early trading in the U.S. got bears talking loudly(after the rip).

A lot of stocks and groups are stuck range-bound trading below a falling 10 day moving average and above flatter longer term averages OR at a support level under 20 and 50 day moving averages. Some of the setups are starting to remind me of some of William O'Neil's textbook short setups.

The Indices

Check out the S&P 500 weekly chart.  It looks like it wants to pop, doesn't it?

Buuut, don't tell the Russell 2000 as the divergence between indices widens.

It's worth noting the S&P 500 and Long Term Treasury prices traded in the same direction every day since Tuesday.  Apparently the market is concerned about rates rising.

To sum it all up, it seems at this point we have enough juice to inflict more pain on bears as many are convinced of a breakdown, but we still might not have enough to sustain a broad breakout in the indices.

Market Internals

I'll be watching this trend-line in the growth to value ratio.  Again, the action in growth stocks have really tipped the markets hand of late.  

The stock - bond ratio is at a critical level and point in time.

For a few years now the market has traded in this stock-bond correlation cycle.  The last four times this cycle peaked we saw an equities peak, most recently coming in September.  Perhaps the cycle is losing it's effectiveness as correlations have changed, maybe not.

Early week action could tell the tale for stocks.  Note the stock only A/D line at the vol envelope median line.  Note the most recent similar pattern in yellow back in 2014.

This low was not a true washout - we're still in this phase of less fear.

PnF breadth continues to pull in across many risk-on sectors.

We could make the argument that breadth via Nasdaq % stocks over the 50 day moving average is bottoming.
 

Groups

The relative strength in MOO continues as it breaks out.

That's a bull MACD cross in DBA as it touches the 10 wk MA.  This agriculture space might just be the best place in the market.

I mentioned the long term trend-lines in play in financials and utilities a few times last week.

And of course we see the action in financials - A tight range for the month. Some mega caps leading the group to new highs.  Traders across the globe exclaim Ah-ha!

....well just like Consumer Discretionary a week or two ago, the internal action is lagging.  Even when just compared to Monday's action.  It's not a huge dislocation, but it certainly makes one wonder.  A large part of it may be that 7-8% of the ETF is REITs.

The Industrials also stand out.  Note breadth is in line while volume is suspect.  The strength appears to be largely due to aerospace.

Other Markets of Note

Outside of high yield, for the most part, bonds rallied at long term support levels while stalling out at short term resistance Friday.

A wedge has formed in the Aussie dollar?

I wrote mid-week on gas prices noting the monstrous seasonal boost is now gone as refiners get back on line after switching blends.

Note the potential topping action here around the 200 day moving average.

The sharp uptrend in Brent Crude ended as it's formed a rising channel.



It'll pay to have a broad watch list this week!  Good luck keeping a level head!

Trade 'em well!