The long-expected Mueller report (redacted) was finally released and the market hardly reacted. Meanwhile, most major US market indexes continued to march forward with the NASDAQ 100 leading, up 1.28% over the last five trading days.

One ominous sign is that small caps (IWM) or the Russell 2000 has been badly lagging and is now in defensive mode. It moved back under both its 200 day and 50 week moving averages. The divergences in sectors are unnerving, with Semi-conductors hitting new all -time highs while Health care and Biotech got walloped. Retail (XRT) closed basically unchanged, adding some more sludge to the already murky waters.

Last week we highlighted that Biotech failed to confirm over important moving averages. That theme played out in spades as it dropped -6.5% over the last 5 days, with many components doing far worse

This week’s highlights are:

• Risk Gauges are still 100% bullish
• Small Cap (IWM) Stocks continue to lag by a wide margin
• The economic modern family is having a serious argument with only 2 of its six components able to confirm a bull phase
• Transportation and Semiconductors are where money is flowing
• Biotech (IBB) failed to confirm moves over key moving averages and got smashed
• Housing starts are weak
• Market Internals showing signs of exhaustion

One of the better leading economic indicators is housing starts and that dropped sharply in March. This followed a big drop in February where the market was expecting a large increase and got blindsided with a 9% drop. Overall, housing starts are sitting at two-years lows. Homebuilders (XHB) are doing respectably in 2019, but far from all-time highs.

One of our key indicators that measure the strength of the economy is the ratio of Wood versus Gold. This ratio measures how robust the housing market is relative to a risk off asset such as gold and is a key input into our Alpha Rotation model. Although the indictor is still showing “Risk On, “this indicator could quickly flip into negative territory. (for more info on our Alpha Rotation model click here)