The broader markets all retraced after SPY, DIA, and IWM making record highs the prior week on the $1.9 trillion stimulus package being approved and positive vaccine news.
The Nasdaq and high-valued stay-at-home stocks have been underperforming with the rise in 10-year yields rising to new weekly highs.
Higher bond yields increase borrowing costs (hurting profits) and produce a lower present value for assets like stocks (hence, the pressure on high P/E stocks).
The FOMC met last week and kept its supportive policies. It plans to keep short-term rates low through 2023 and the $120 billion per month of securities purchases. The bond market is fighting the Fed as the 10-year yield rises on increasing inflation expectations.
About $242 billion of the stimulus bill was deposited into Americans’ bank accounts on Wednesday. Bank of America stated that a record $68.3 billion flowed into equity funds last week confirming our prediction that some of the stimulus is going to speculation rather than spending.
The Dems continue to want to spend more and tax more. During the Presidential campaigning last year, the media was suggesting that would kill the markets. It hasn’t – so far.
With the volatility into Friday’s close from the quarterly expiration of stock and index options, we will start cautiously at the beginning of the week to see what follow-through we get.
TREND MATRIX
The changes to the Matrix that occurred last week were relatively insignificant. However, the whipsaw price action has continued.
The depth of retracement in the weaker sectors was a small positive, but the gap lower on Thursday and continued to move lower was significant.
The price pattern is seen in the S&P 500. For example, historically, we would not see a retracement back down to March 5 low.
Like those seen in the Technology sector, the price patterns that were more damaged may go down to that low or even below it.
We hope that they do move down to that low or break those lows, which would create an excellent buying opportunity.
TREND MATRIX PERCENTAGE CHANGES
In a week where the continued rise in interest rates and their gap higher Thursday dropped the market sharply at the end of the week, the Homebuilding ETF was the top performer.
Maybe the rise in rates that began last year motivated pent-up demand to buy. As the 10-Year yield continues high toward the 2.0% area it fell from, the homebuilding sector ETF is likely to underperform.
Gold Miners and Gold did okay last week as they form buying interest at their long-term price support, they are at the last breakdown area, which is resistance.
TBT (short bonds – rising rates) moved and the daily and weekly trend suggests it will continue to.
Most sectors whipped up and down.
Two weeks ago, we said the potential for a pullback is increasing in Energy.
The XLE ETFs, the most diversified of the energy ETF’s, pulled back less than others. OIH and XES are down just over 12% and 13% respectively.
Crude oil futures fell from a high of $68.02 weeks ago to an intraday low near $58 on Thursday.
VIDEO REVIEW OF MARKETS AND INTERNALS
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NEW ETF TRADE IDEAS
3/22: Global X Robotics & Artificial Intelligence ETF (BOTZ) – Under $32.96, consider shorting the ETF. Sell Setup at 20/50-MA. Stop half at $33.96 and half at $34.71
3/22: U.S. Global Jets ETF (JETS) – Over $28.15, consider buying the ETF. +Gap and retracement after +WRB Breakout. Stop $25.76.
3/22: U.S. Global Jets ETF (JETS) – Over $28.15, consider buying the ETF. +Gap and retracement after +WRB Breakout. Stop $25.76.
OPEN AND CLOSED ETF POSITIONS WITH TRADE UPDATES (NOTE: Also in Member’s Area in Open/Closed Trade Sheet)
3/22: Global X Robotics & Artificial Intelligence ETF (BOTZ) – Under $32.96, consider shorting the ETF. Sell Setup at 20/50-MA. Stop half at $33.96 and half at $34.71
3/22: U.S. Global Jets ETF (JETS) – Over $28.15, consider buying the ETF. +Gap and retracement after +WRB Breakout. Stop $25.76
3/15: ETFMG Alternative Harvest ETF (MJ) – Bought the ETF at $24.24. Breakout daily, Buy Setup and bullish engulfing reversal weekly. Stop $19.50
2/16: SPDR S&P Metals and Mining ETF (XME) – Bought the ETF at $36.04. 3/20: Move Stop $38.57
2/18: SPDR S&P Oil & Gas Exploration & Production ETF (XOP) – Bought the ETF at $75.63. 3/8: Sold half at $87.71. 3/17: Stopped at $86.07
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Dan Gibby Chief Options Strategist
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