Anti-Rotation At Play in Divergence?

Divergence was the word of the day on Thursday following a slightly hotter-than-expected CPI print for May.  The large caps gapped up, while the QQQ and IWM both opened flat.  However, the SPY vacillated all day while the DIA sold back off toward the prior close, the IWM sold off all day and the QQQ rallied in the morning and traded dead flat all afternoon.  This left the QQQ as a big beautiful white breakout candle, the SPY as an indecisive Spinning Top still sitting on the all-time high resistance, and the DIA as an ugly black high-wick candle that might still have held the uptrend.  IWM was also an ugly black candle that held trend.  On the day, SPY gained 0.48% (to a new all-time high close by fractions), DIA “gained” 0.09%, QQQ gained 1.04%, and IWM lost 0.83%.  This may even be a sign of the undoing of recent rotation into value names and back into tech high-flyers. Anti-rotation if you will. AMZN is a prime example from Thursday, The VXX fell almost 6% to 31.70 and T2122 fell further into the midrange at 67.21.  10-year bond yields fell significantly (despite the hot 4.9% CPI) to 1.44% and Oil (WTI) rose a quarter percent to $70.13/barrel.

During the afternoon Thursday, the Fed release statistics that showed US Household Net Worth rose to almost $137 trillion at the end of Q1 (fueled in large part by stock market and real estate price increases).  This was a 3.8% increase since the end of 2020.  During the same period, Household Debt grew 6.5% (fastest growth since 2006), Government Debt grew 6.5% (down from 10.8% the prior quarter), and Business Debt grew at 4.4% (an increase over Q4 2020). 

After a rough week, meme stocks are seeing a small (relatively speaking for meme stocks) relief rally.  GME is up 6%, CLOV is up 6%, AMC is up 6.4% in premarket trading.  For context, all of these stock are still up thousands of percent on the year, even after being more than 50% off the highs of the week.

Related to the virus, new US infections continue to fall.  The totals rose to 34,275,783 confirmed cases and deaths are now at 614,007. These numbers are now under-reported again as some states (mostly Southern) have decided to stop reporting data on a daily basis. Nonetheless, on the data we do have, the number of new cases is falling again and are back down to an average of 13,516 new cases per day (the lowest number since March 2020). Deaths are also falling, just more slowly, but are now down to 383 per day (again, the lowest number since March 2020).  The first US cruise ship to resume operation had an ominous reopening.  After the 7-day cruise in the Caribbean, 2 of the 500 passengers tested positive.  

Globally, the numbers rose to 175,677,082 confirmed cases and the confirmed deaths are now at 3,790,320 deaths.  The trends are better again as we have seen a slowing in the rate of increase now that India has passed its peaked.  The world’s average new cases are falling quickly now, but remain at 385,051 new cases per day.  Mortality, which lags, is also falling, but remains at 10,127 new deaths per day.  In China, researchers have found a “batch” on new coronaviruses that are similar, but distinct from Covid-19.  One of them was genetically very close to the original strain of SARS-CoV-2.  

Overnight, Asian markets were mixed again and once again in modest trading.  South Korea (+0.77%) and Thailand (+0.69%) led gainers while Shenzhen (-0.62%) and Shanghai (-0.58%) paced the loses.  However, in Europe, markets are green across the board so far Friday.  The FTSE is up 0.63%, the DAX up 0.55%, and the CAC up 0.78%.  This comes as DB reported that they expect “peak inflation” in the UK will be “close to 3%.”  As of 7:30 am, US Futures are tepidly green.  The DIA is implying a +0.19% open, the SPY is implying a +0.14% open, and the QQQ is implying a +0.18% open.  It is worth noting that, like Thursday, 10-year bond yields are down again in premarket to 1.443%.

The major economic news scheduled for Friday is limited to Michigan Consumer Sentiment (10 am).  There are no major earnings reports on the day.  

Thursday, markets seemed to emphatically say that they believe the Fed about inflation being transitory and no reason for quick policy changes. At least the 10-year bond is following through in the same direction early today. With no news (unless you count a potential infrastructure spending deal between 10 moderate Senators, that has no been fleshed out yet) to drive action, it is quite possible we see drift today ahead of a summer weekend. At least at this point, it looks like the QQQ and SPY are trying to follow-up gains from yesterday, while the DIA is trying to reverse an ugly move from Thursday.

Follow the trend (the one appropriate for your trading horizon) and respect support and resistance levels. However, don't just assume those levels will hold...they are all breached eventually. Beyond that, keep locking in profits as soon as you achieve your trade goals and maintain discipline by following your trading rules. Remember that consistency is the key to long-term trading success. So, keep hitting those singles and doubles.

Ed

Swing Trade Ideas for your consideration and watchlist: No trade ideas today. You can find Rick's review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

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🎯 Malcolm .: Posted in room 2, @Rick... I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade:  PYPL, TGT, and ZS.   Quality patterns and with my trading, up 24%, 7% and 12%.... this program is gold.

🎯 Friday 6/21/19  (10:09 am) Aaron B: Today, my account is at +190% since January. Thanks, RWO HRC Flash Malcolm Thomas Steve Ed Bob S Bob C Mike P and everyone that contributes every day. I love our job.

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