The Momentum Trade That’s Taking The Entire Market Up With It

Stocks continue to defy logic from a fundamental standpoint, but as we all know, fundamentals do not always drive price action. While many investors continue to be “confused” by the current price action, it may not be as confusing as it seems. 

Many investors seem to think that market is trading with a premise that the worst is behind us, and to some degree, the worst may be behind. But they’re still plenty of unknowns left, that I think even the most bullish investors would have a tough time answering. 

Fed Balance Sheet 

The belief that the Fed is pumping the market is fundamentally false. The Fed’s bond purchases, although large have subsided in recent weeks, and based on this week’s schedule will continue to recede. 

fed balance sheet

The Fed is creating money out of thin air, but the only problem is that it is merely sitting in on the balance sheets of the banks at the Fed, as noted by excess reserves, for which the Fed pays interest. 

excess

Regardless, the market is recovery for the most appears to be contained to most technology-based companies that lie in the NASDAQ 100. The index has easily outperformed the others by quite a bit. So when we talk about the market, we need to start thinking about the market and the “market.” The Internet ETF XWEB has returned to its 2020 highs and now has an RSI of over 70, meaning it is overbought. Could it continue to become more overbought,of course, I don’t have to tell you that.

But the ETF is now also approaching a resistance zone between $89 to $91. If the index can break out, then there is no stopping the rally higher. If the ETF fills the gap and is also in the final stages of the rising wedge pattern, then perhaps it may have quite a distance to fall. The $91 level may be a healthy level of resistance for the ETF because it has been firm since the beginning of 2019.

web etf

Stamps.com 

Stamps.com (STMP) is the most significant stock by weighting in the ETF. The stock is trading with an RSI over 80 and completed a gap fill at around $205. 

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Disclaimer: This article is my opinion and expresses my views. Those views can change at a moment's notice when the market changes. I am not right all the time and I do not expect to be. I ...

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