Hello Everyone,
Quick Comments
: The market has continued to climb this amazing wall of worry since late March 2020. We saw an astonishing recovery last year when the market indexes fell 30% in a month from late Feb to mid Mar on the initial Covid lockdowns, then suddenly bottomed and after being down -30%, the SPX closed up 16% for the year, while the Nasdaq 100 closed up 48% for the year! The gains have continued this year as well, and I call this 'climbing a wall of worry' because everyone has constantly been on the lookout for signs of a coming big correction that has yet to manifest. As I said, the market is doing great this year with the SPX currently up 19% for the year, and the Nasdaq 100 up about 17.5%. The SPX has now been up for 7 months in a row without a correction and there has not been more than a 5% correction since Sept 2020!
Technically speaking the SPX, Dow, and Nasdaq are trending up strongly, while the Russell 2000 is not. The trend is clearly up but my 5 concerns are:
1. The rally off the mid July lows for the Russell 2000 looks reflexive, not impulsive, needing another correction.
2. The Breadth has been weak with mainly the large cap names leading the market - analogy the Generals are doing the fighting on the battlefield and not the troops.
3. Weak seasonality is approaching with September and the market is now mostly through earnings season where it has been historically strong.
4. The % of stocks in the Nasdaq that are above their 200 day MA is only 41.7% while the index is at its highs, I've never seen such a disparage when looking at past history
5. Just from a reversion to mean standpoint, the market has been trending strongly for a while without a correction, it's overdue.
I added a handful of trade setups - Still very tough to find what I call 'Grade A Setups'. I also added hedges to monitor: TZA, SQQQ, VXX, SPXU
Also we got a few new DVT's last week, see table below
enjoy the rest of your Sunday,
Matthew Frailey
