Stocks staged a big intraday reversal on Thursday and followed through on Friday with strong breadth (one day). The two-day sequence is impressive, but not enough to undo the technical damage done the last two months (%Above 200-day, bearish breadth thrusts, expanding new low list). In addition, yield spreads continued to widen and show rising stress
The markets are getting rattled with big moves after the invasion of Ukraine, but these moves are in the direction of existing trends. Oil, industrial metals, gold and agriculture were already in market leading uptrends. They are also up strong today. SPY, QQQ and many ETFs were already in downtrends after impulse declines in January. There were oversold bounces in February, but
Small-caps were the talk of the town in mid November as they broke out of a seven month range and the skies opened up. Volatility then reared its ugly head in late November when the Russell 2000 ETF (IWM) fell some 12 percent from a new high. IWM continued lower in January and hit a 52-week low. The Russell 2000 Growth ETF (IWO) led the way as money fled high-beta stocks and ETFs.
There were lots of downtrend signals this past week and over the past month. Selling pressure expanded and broadening participation on the downside was enough to push the Composite Breadth Model back into bear market mode. Note that I will update the Market Regime page on Friday morning. For now, the pickings are slim among the equity-related ETFs
The S&P 500 fell 5.75% this week and this as the biggest weekly decline since March 2020 (covid crash). It was the second biggest weekly decline since October 2020 (5.6%). Declines like this are normally associated with a selling climax that could give way to a short-term oversold bounce. Longer-term, however,
The transition process is difficult and the markets are undergoing a transition from a covid-driven economy to a normal economy. A covid economy implies Fed easing, fiscal stimulus and falling Treasury yields. A normal economy means no more balance sheet expansion, no more fiscal stimulus and a normalization of Treasury yields.
The stock market is as mixed as it ever with defensive issues leading, banks and energy breaking out, materials and infrastructure holding up and tech stocks taking it on the chin. Healthcare ETFs were also hit quite hard this week. Six of the magnificent seven (stocks) are under pressure and this is weighing on cap-weighed SPY and QQQ.
The Composite Breadth Model flipped back to bullish with the bounce in stocks over the last five days. Even so, the market remains quite divided right now. Large-caps are still leading, small-caps are still lagging and mid-caps remain caught in the middle. The divide is visible within some sectors as well.