Despite all-time highs in the NASDAQ Composite and S&P 500 Indexes this past week, we continue to find nothing coming through our screens that would meet the criteria for inclusion on our Focus List. As we've noted in recent reports, the indexes have been able to forge new highs while the action under the surface among individual stocks remains highly bifurcated and rotational. Thus, this market is most easily and simply played using index ETFs according to the Market Direction Model (MDM), which switched to a BUY signal on Thursday, July 1. Meanwhile, money continues to move into tech/growth names as it pulls away from cyclicals, with particular concentration in the big-stock NASDAQ names which comprise over 40% of the NASDAQ Composite Index.
Money has continued to move into big-stock names like the proverbial "S&P Five," consisting of five names which account for over 1/5th of the S&P 500, namely Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOG), Facebook (FB), and Microsoft (MSFT). All five stocks ended the week with all-time weekly closing highs. AAPL has been moving higher since pushing above its 50-dma two weeks ago, but the uptrend has occurred on light volume with stronger volume finally coming in on Friday. MSFT broke out to all-time highs nearly two weeks ago, but the move came on week volume, while GOOG broke out to all-time highs on Friday on weak volume. Should money continue to move into these stocks, then simply playing it as an index move given the huge influence these names have on the NASDAQ 100 Index is simple strategy. To this end Thursday's BUY signal issued by the Market Direction Model would have dictated buying a position in the QQQ or TQQQ ETFs in order to participate in any further upside from here, with the idea that any breakdown in these names and the NASDAQ 100 would result in quick and flexible reversal of the current BUY signal if necessary.
At the same time, we have seen cloud software names rally in steep, steady and quite impetuous uptrends off their May lows, as the First Trust Cloud Computing ETF (SKYY) illustrates below.
At the same time we have seen the inflation trade lose favor, sending commodity-related "stuff stocks" like cyclicals, industrials, and metals areas of the market lower. This is partially illustrated by the corrective action in the Materials Select Sector SPDR Fund (XLB) and the Industrials Select Sector SPDE Fund (XLI).
Some divergence does exist in the tech sector, primarily among semiconductors. Both Brooks Automation (BRKS) and Western Digital (WDC), which we reported on as Short-Sale Set-Ups on June 18th, remain in downtrends where they have remained as short-sale entry candidates on rallies into their 50-day moving averages over the past two weeks.
The bifurcation observed among individual stocks and groups in this market sums up to flattish action in the broadest larger-cap major market index, the NYSE Composite Index ($NYA), which consists of 2,000 stocks, as it tracks sideways in a wide-ranging consolidation extending back to early May.
We can also see that the small-cap Russell 2000 Index, also consisting of 2,000 names and represented by its close proxy the iShares Russell 2000 ETF (IWM), below, is trapped in a similar wide-ranging consolidation extending back to early May.
On Tuesday we sent out a U&R Report on both gold and silver as the Sprott Physical Gold Trust (PHYS) posted a U&R move along its prior 13.93 low of April 29th, which would serve as a tight selling guide. The PHYS regained the 10-day line on Friday, which now serve as an alternate trailing stop. Note that on Thursday it posted a second U&R along the 14.03 low of June 18th, which can be utilized as a third alternative trailing stop.
The Sprott Physical Silver Trust (PSLV) on Tuesday posted a U&R through its prior 9.15 low of June 18th and has also regained its 10-day moving average. This can be used a trailing stop, or one can simply use the 9.15 low as an absolute stop.
The big question for the market remains where interest rates are headed, and whether inflation will turn out to be transitory, as the Fed claims, or more permanent. If the latter is the case, then we could see the inflation trade gain favor again as higher-PE and higher PE-expansion tech names may be adversely affected by potentially higher rates. But such is still likely a long way off. Pending any decisive resolution to this question, we continue to believe that this remains mostly a swing-trader's market with very little, if anything, that we believe has more intermediate-trend to longer-term trend potential. Stay tuned.