EC Stocks Vs. Rates – Which One Is Most Likely Right?

Last week, we said: "With ‘money flows’ turning lower on Thursday and Friday, we will likely get a ‘sell signal’ next week.” Such is what occurred.

Specifically, I stated:

“The market is trading well into 3-standard deviations above the 50-dma, and is overbought by just about every measure. Such suggests a short-term “cooling-off” period is likely. With the weekly “buy signals” intact, the markets should hold above key support levels during the next consolidation phase.” 

As shown above, that is what is currently occurring. While the market remains in a very tight range, the “money flow” sell signal (middle panel) is reversing quickly. Importantly, note that the money flows (histogram) are rapidly declining on rallies which is a concern.

While it is confusing to have contradicting “buy” and “sell” signals, such suggests a consolidation of the recent advance rather than a more significant correction. Such is what seems to be in process during this past week. More sizable declines occur when the short and long-term “sell signals” are in confirmation and a point made in the video below. We also explain why growth stocks may be a better place to be this summer.

For now, the market trend remains bullish and doesn’t suggest a sharp decrease of risk exposures is required. However, we did take profits out of our index trading positions last Monday. Risk management is always a prudent exercise as markets can, and regularly do, the unexpected.

Markets Are Pricing In A Huge Recovery

The stock market is currently pricing in a “huge” economic recovery. As noted by Goldman Sachs in a recent report, they now expect economic growth in 2021 to hit levels not seen since the early ’90s.

That explosion of economic growth supports the surge in earnings expectations and the surge higher in year-end price targets. Such was a point I discussed in our recent Earnings Analysis Report.

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