The economic contraction based on a longer business cycle timeframe, or 6-8 years, might be done.
The 80-month moving average (green line) held in small caps (IWM), retail (XRT), and transportation (IYT).
That doesn’t mean we start expanding, though. It just means the market looking forward, might trade to the upper regions of the trading range.
That is the Stagnate part of stagflation.
On the other hand, the business cycle within the longer cycle or two years, measured by the 23-month moving average (blue line), has yet to pierce to the upside except in a couple of sectors like semiconductors (SMH).
So, growth stocks could expand further while the “inside” parts of the US economy remain sideways for longer.
Hence, we have bad news and good news.
The bad news is the indexes, and many sectors, are range bound and may remain so for a long time.
The good news is that the indexes and many sectors are range bound and may remain so for a long time.
We still believe that the SPDR® S&P 500 (NYSE:SPY) could clear over the 23-month moving average.
Ultimately though, the small caps (IWM) must follow. Two scenarios can spoil the party:
- If IWM fails the 80-month moving average going into more of a recessionary cycle-worst influence are the Regional Banks. That would force SPY to reconsider the rally.
- IWM holds yet cannot get above 190-200. The SPY could be at 240 and still reverse course in that case.
You can also see the difference between the small caps and the S&P 500 on the daily timeframe.
A first step would be for IWM to rally above the 50-DMA or blue line. Then, maybe we are on the way to more upside. Shorter-time frame, of course, but a good start if it can happen.
Real Motion Momentum is meh in the SPY and about to enter a bear phase in the IWM. Momentum needs to clear back over both moving averages in IWM to get even more interesting.
More macro:
High-grade corporate bonds (LQD) and high-yield high-debt junk bonds are both in trading ranges.
However, seasonally, and historically, yields tend to peak in May. Considering the CPI numbers, that is possible.
The US Dollar is holding major support, testing the lows of its 2-year business cycle expansion. That is a good line in the sand.
Furthermore, gold and silver are also now range-bound- albeit at higher levels. Copper and Platinum are strong. Soft commodities, especially sugar, and cocoa, are strong. Food prices remain the stickiest part of inflation.
That is the Flation part of stagflation.
The CPI numbers exclude food and energy. Plus, global inflation is still high.
- ETF Summary
- S&P 500 (SPY) 23-month MA 420
- Russell 2000 (IWM) 170 support - 180 resistance
- Dow (DIA) Dancing on the 23-month MA
- Nasdaq (QQQ) 329, the 23-month MA
- Regional banks (KRE) 42 now pivotal resistance-holding last Thurs low
- Semiconductors (SMH) 23-month MA at 124
- Transportation (IYT) 202-240 biggest range to watch
- Biotechnology (IBB) 121-135 range to watch from monthly charts
- Retail (XRT) 56-75 trading range to break one way or another