Bubble Trouble Or Not?

US Equity markets regained its footing with most key benchmarks gaining 3% for the week. The NASDAQ 100 (NDX) is up over 8% YTD while the IWM (Grandpa Russell) (IWM) is down -18.58% during the same period.

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This divergence in price action between small caps and growth stocks mirrors the issues facing the nation on both the political and economic front. Depending on whom you speak to about the markets, we are either in a massive bubble or it is the greatest buy opportunity since 2009.

The bull camp can point to FANG stocks, big tech, biotech, and social media names that have been able to profit handsomely during the quarantine and are running away in price (some hitting new highs).  On the bear side of the coin, small caps lag with the Financial and Service sectors languishing and unemployment soaring to depression era levels. Hertz (HTZ), Pier 1, and many retailers filed for bankruptcy.

Furthermore, the NASDAQ 100 is just 1 1/2 ATR’s from its all-time highs, which seems remarkable. Can both theories be true? If so, how will this resolve?

This week’s highlights are:

  • Risk Gauges returned to 100% Risk On
  • The NASDAQ 100 regained it bullish phase, just 3% off its all-time highs
  • Biotech continues to lead and is in a bullish phase
  • Market Internals continue to lag overall market strength
  • Volume was light, not confirming price action
  • Volatility (VIX) bounced off their lower Bollinger bands and need to hold 24 price level to keep bear case alive
  • XRT (Grandma Retail) is showing good relative price action (XRT)
  • The Energy sector continued to bounce from its historic meltdown, a bet on the economy re-opening

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