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Only One Can Be Right, Stocks Or Bonds. Currently They're Contradictory

By Keith SchneiderStock MarketsJul 06, 2021 12:04AM ET
www.investing.com/analysis/only-one-can-be-right-stocks-or-bonds-currently-theyre-contradictory-200589905
Only One Can Be Right, Stocks Or Bonds. Currently They're Contradictory
By Keith Schneider   |  Jul 06, 2021 12:04AM ET
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ETH/USD
+0.42%
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SHY
+0.18%
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+0.81%
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It is a very strange market…

Small Caps (otherwise known around MarketGauge as Grandpa Russell) were down almost -1.34% for the week, bucking the new all-time highs in both the QQQ’s which was up + 2.6%, and the SPY which was plus 1.67%.

Growth stocks continued leading the charge.

What is interesting is that despite the stellar performance by the SPY and growth stocks, market internals barely budged. They remained neutral. This indicates that last week’s move up was focused on just a few big cap growth/technology names that carry a disproportionate amount of weight within the S&P 500 index.

Despite low rates, High Yield Debt (HYG) continues to underperform the safety of the U.S. Long Bond (TLT). Still, a trend like the current one is indicative of a Risk-Off mindset that is typically bearish for stocks.

Credit markets are often considered smarter (or one step ahead of) the equity markets, so the HYG/TLT trend could be foreshadowing a sell-off. Keep an eye on it.

The big question we believe traders should be focused on right now is, will the credit markets prove right in predicting a crash? Keep your eye on activity in both credit and equity markets in the coming weeks to see which is right, because right now they’re contradicting each other.

This week’s highlights are the following:

  • Risk Gauges remain Risk-On
  • Volume patterns improved to neutral with only 1 distribution day vs. 8 accumulation days across all 4 indices over the last 2 weeks
  • Small Caps (IWM) were down on the week, unable to make a new high like NASDAQ 100 (QQQ) and the S&P 500 (SPY)
  • The Dow (DIA), Mid-Caps (MDY), and Small-Caps (IWM) are all under pressure relative to the S&P 500 (SPY) and NASDAQ 100 (QQQ) which are predominantly led by a handful of Large-Cap names
  • 52-Week New Highs in the SPY seems to be running out of steam along with the McClellan Oscillator which is still giving a neutral reading
  • SPY is getting overbought and outside its upper Bollinger® Band, and the number of stocks above the 10-DMA is starting to get frothy
  • Long Bonds (TLT) are remaining firm despite (rates dropping) inflationary pressures
  • High Yield Debt (HYG) is lagging vs. Treasuries (TLT). This is a risk-off scenario
  • Short-term bonds (SHY) bounced off oversold levels, but is still under tremendous pressure and in a bear market
  • Growth (VUG) continues to outperform Value (VTV)
  • Commodities performed well across the board on the week, led by Corn (CORN)
  • Natural Gas (UNG) continues to defy its seasonal swings, up 4.79% on the week
  • Technology (XLK) and semiconductors (SMH) were the leading sectors on the week
  • Transportation (IYT) once again lagged, and it remains in a warning phase
  • Regional Banks (KRE) are also in a warning phase
  • Agricultural commodities (DBA) are lagging SPY
  • The short-term technicals look better on Gold (GLD), but there is major resistance at the 50 and 200-DMA’s

This Week in Crypto:

  • The most notable news event this past week was the crackdown on Binance (the world’s largest crypto exchange by volume) in countries across the world. This was most notable in the UK due to the accusation of it illegally offering crypto derivatives.
  • Despite the Binance news shining a light on the potentially negative governmental sentiment toward the crypto industry, this week saw an overall crypto market cap jump of 20% over a 7-day period due to increased demand by new buyers.
  • Ethereum (ETH) led Bitcoin (BTC) this week, with a 7-day increase of 26% vs. 10.5% in Bitcoin (BTC).
  • Ethereum (ETH) is looking to get back above its 100-DMA which was violated 2 weeks ago for the first time since May of 2020.
  • Over the past 6 weeks the number of active BTC wallets has decreased by 60%, with ETH wallets taking the lead. Monitor this situation and other blockchain metrics in the coming weeks to determine whether Bitcoin or Altcoins will lead a potential crypto market recovery.
Only One Can Be Right, Stocks Or Bonds. Currently They're Contradictory
 

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Only One Can Be Right, Stocks Or Bonds. Currently They're Contradictory

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Comments (2)
Carlo Antonini
Carlo Antonini Jul 06, 2021 3:23AM ET
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This sort of analysis is utter trash. High yield on an absolute basis is still strong. Relative performance isn’t very meaningful when the assets being compared are both moving to the upside.
Pa Ag
Pa Ag Jul 06, 2021 2:21AM ET
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Very well written. Wide coverage of assets. Btw, do yourcharts olot tital return ir ‘priceonky’. Thx.
 
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