4/2/23

#STOCKS – $XBI, $ARKK, $TLT

#MACRO – $SPX, $NDX

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This week’s FREE YouTube Video:

 

Welcome back! I took last week off, and this week I’m feeling pretty bad due to a virus, so this may be a bit shorter than usual. Last week, the S&P 500 rose as systematics funds started buying again after the index crossed some key levels. These funds are quantitative in nature and respond to movements in the index based on levels or moving averages, with no fundamental analysis. This makes them a dangerous group as they can move the market given their size and can also flip the other way quickly. I covered this in detail in this week’s free Seeking Alpha story on why the bear market is not over.

S&P 500 (SPY)

However, there were some other factors from the technical side of things worth reviewing here. First, volume in the S&P 500 futures has been declining steadily since the March 13 short-term low, with the levels seen over the past week similar to those during the December holiday season. This is concerning because systematic buying is pushing the market higher on light volume.

The S&P 500 also traded above the upper Bollinger Band, which suggests that the index is close to either pausing and consolidating sideways or due to be pulling back to the lower Bollinger Band.

NASDAQ (NDX)

The bigger problem lies in the NASDAQ, as the cumulative number of stocks making new highs minus new lows is still making lower lows. In 2018 and 2020, this cumulative value stopped making new lows and moved sideways as the index turned higher off the bottom. This cumulative chart has helped me a lot in determining the direction of the market, and it suggests that the next leg lower is still to come.

Tech and Financials

I think what we’ve seen over the last week or two has been driven by systematic trading and rebalancing of portfolios, as investors have sold financials, for obvious reasons, and moved into mega-cap technology names. This is most noticeable in the XLK to XLF ratio, which has recently risen very quickly.

Rates

Some of this could also be a knee-jerk reaction to the idea that the Fed is going to start cutting rates, but I think that is unlikely to happen unless something changes dramatically in the economic landscape. In fact, I would tend to think that rates are likely to rebound from here a bit, at least based on the potential triple-top pattern that is now present in the TLT, sending the TLT lower, and yields up.

See you next week.

Mike

Charts used with the permission of Bloomberg Finance LP. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.