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Monday, June 21, 2021

Stocks Rose Yesterday As Rotation Trade Starts Again

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Stocks rose as the rotation trade started in stocks again. The mechanical nature of the market continued, as the Nasdaq and the technology ETF (NYSE:IYW) approached the upper end of their trading channels, we began to see the swap.

The QQQ (NASDAQ:QQQ) went above the upper end of the channel and pulled back sharply. It probably means the Qs are heading back to the lower end of the channel to around $272.

QQQ Daily Chart

QQQ Daily Chart

Meanwhile, the XLK (NYSE:XLK) hit its upper end of the channel, and that is likely to lead to a pullback to around $116. Since the beginning of April, this has been the back and forth trend. Could this be the time it doesn’t work? At some point, it isn’t going to work anymore.

XLK Daily Chart

XLK Daily Chart

Financials, materials and industrials rose

Of course, that meant that financials went higher, as did materials and industrials. So we will see if technology sells-off like the times before benefit these sectors. The big question comes at the end of the week when Federal Reserve Chairman, Jerome Powell will speak virtually at what used to be Jackson Hole. It will be interesting to see what he has to say, or better yet if the market will listen.

Yields

Yields moved up yesterday, and more importantly, held support at 0.625 bps. Could it be the start of a trend higher? It certainly could be. If you paid attention to the Fed minutes, then yes, rates should be going higher. Certainly not back to where they were, but could we see 90 bps or even 1%? Yes.

US Govt Bonds 10 Yr Yield Daily Chart

US Govt Bonds 10 Yr Yield Daily Chart

Dollar

Meanwhile, the dollar also rose, and again, if you listened to the Fed minutes last week, the dollar should continue to head higher. Sure rates are going to remain lower for a long-time, but it seems like they aren’t likely to head much lower from here at present.

USD Index Daily Chart

USD Index Daily Chart

Even three-month eurodollar rates are starting to rise, in a sign that perhaps demand for dollars outside of the US is beginning to grow. If you want to know where the dollar is going to, you have to watch these rates.

100 CME GE1 Daily Chart

100 CME GE1 Daily Chart

Gold

Gold would likely fall further if the dollar keeps going higher, and a drop below $1925 triggers a drop to $1860.

CFDs On Gold Daily Chart

CFDs On Gold Daily Chart

You know what I find funny, is how the economy and stock market are not connected. But last year, when the market was gyrating regularly by 3% in August, it was because the market was fearful of a recession. So which is it? Is the market rising because the economy has no bearing on the market? Or is the market a discounting mechanism for future growth or earnings, which come from the overall economy? The narrative changes a lot to fit the times.

Lumber

Oh look, lumber fell. I know its inflation at work, right?! It has nothing to do with a supply shortage or transportation issues. Nah. It has to be inflation hard at work.

No wait, better yet, it’s not inflation, it’s stagflation. That has much more onerous sound to it.

Lumber Futures Daily ChartLumber Futures Daily Chart

JPMorgan (NYSE:JPM)

Hey, if yields are going higher and we are going to start to rotate, then JPMorgan should be one stock that goes higher. Maybe it even gets back to $105.

JPMORGAN Daily Chart

JPMORGAN Daily Chart

Bank of America (NYSE:BAC)

Bank of America may go back to $28.

Bank Of America Daily Chart

Bank Of America Daily Chart

Citigroup (NYSE:C)

With Citigroup going back $55.

Citigroup Daily Chart

Citigroup Daily Chart

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