As The Market Churns
Stocks managed to grind their way higher on the day, while rates and the dollar rebounded from yesterday's declines. The price action in the stock market has been strange, and I can only attribute that to some internal rotation. Yesterday, small caps and the S&P 500's equal weight were strong. Today, these parts of the market were weak while the headline S&P 500 was up.
But the funny thing is that the indexes are all up the same amount after two days.
The one thing that seems clear is that something is bound to break here because when you look at the SMH relative to the RSP, it is not a chart that inspires confidence. It looks like the double top pattern mixed with a head-and-shoulder, and that can't be a good mix.
The SMH to SPY looks the same.
The QQQ to IWM ratio has a similar feel.
The QQQ to KRE ratio has already broken down.
Recommended by LinkedIn
As does the QQQ to DIA.
It almost feels like the market keeps rotating around, keeping this ratio afloat. The XLK to XLF has already broken down, though it could use more follow-through.
While the XLU to XBI won't budge.
You could see why it may be the case, for example, if someone were long tech and short small caps. Or whatever. Given the herd mentality, plenty of these trades are likely going on. The only question is whether or not something comes along to force that trade to unwind. I do not know.
It is a frustrating market for anyone who isn't invested in an S&P 500 index fund because this endless rotation only seems to push the S&P 500 higher while everything else just churns.
-Mike
Charts used with the permission of Bloomberg Finance L.P. 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. 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.