Image source: Pixabay

After a brief market pause, we got a pullback from short-term oversold levels and saw stocks resume their upward trend, partially fueled by a much narrower, large-cap stock rally. This leaves the major indexes stuck between their 50- and 200-day moving averages, and they seem to be in warning phases.

We also saw commodities (especially natural gas, oil, and some soft commodities) and cryptocurrencies all continue their upward ascent, with the latter making huge single-day moves. Interest rates moved up (bonds moved down) despite a weak jobs report, and it was the only asset class that did not participate in the climb higher.

Many of the factors that created a more favorable investment environment included a potential resolution in the government’s looming near-term debt crisis, inflationary pressures (which often have a short-term positive bias but eventually lead to negative economic pressure), and the numbers of Delta variant hospitalizations coming down.

The economy, especially travel and leisure, continue to experience the reopening surge. Friday was met with a bit of disappointment in the jobs numbers, as it was revealed that less people are seeking the millions of current job openings. That made the unemployment rate inch down, even though the actual number of new jobs created were far less than the overall expectations.

We remain concerned about the ongoing inflationary pressures (higher interest rates) and the inevitable negative impact this may have on company profits, the shortage of workers in certain industries, and the potential of a slowing economic growth rate.

We’re watching our intermarket indicators very closely for any signs that we need to enter a period of a “risk off” attitude.

This Week’s Big Highlights

• Risk gauges have improved across the board to adopt a 'risk-on' attitude.
• The major indices have bounced from oversold conditions, with SPY, QQQ, IWM, and DIA all hitting resistance and stalling on their 50-day moving averages.
• SPY improved vs. US long bonds (TLT), which is another risk-on signal.
• Despite the improvement in risk gauges, there is poor volume across the major indices, with more distribution days (14 combined across the four US Equity benchmarks) than accumulation days (four combined) over the past two weeks.
• Utilities (XLU) remained flat over the past five days, which is also a risk-on indication.
• Energy (XLE) and financials (XLF) were the leading sectors this week, with 3.3% gains in each.
• Volatility got hit hard, which is a bullish indication.
• China (FXI) was up 6% (mean reversion kicking in) over the past five days despite the Evergrande/real estate issues, and the index looks to be potentially bottoming.
• High-yield bonds are breaking down, failing the six-month calendar-range low, which could pressure equities in the near future.
• Market internals remain neutral to marginally positive.
• Value stocks maintained the recent outperformance over growth stocks.
• The regional banks (KRE) and transportation (IYT) sectors are leading, with KRE getting support from higher rates.
• Established markets (EFA), which need access to cheap energy, are weaker than emerging markets (EEM), which are commodity sensitive
• The soft commodities ETF (DBA) is sitting at its highest price since mid-2018.
• Gold (GLD) gapped up to its 50-day moving average and rejected it.

This Week’s Cryptocurrency Highlights

• Bitcoin (BITCOMP) was up 13% on the week after clearing the $50 thousand level and consolidating at $55 thousand, and it has remained in a four-day trading channel with support at $53,750 and resistance at $55,350. Look for a daily close above this trading range for a potential move to $60 thousand.
• Ethereum (ETH-X) has maintained support above its 50-day moving average for the week, with $3,675 as the next level to beat.
• Shiba Inu (SHIB-X) and Dogecoin (DOGE-X) were up 250% and 10%, respectively, on the week after Elon Musk tweeted a picture of his pet Shiba Inu, thus indicating that the 'Musk Effect' can still impact the altcoin market
• Both Gary Gensler of the SEC and Jerome Powell of the Fed made reassuring remarks about crypto regulations this week, as many are watching for the potential approval of the US's first Bitcoin.