Good morning,
A few things I’m thinking about as we head into this week.
The Russell 2000 breaking out of a four-year base and hitting a new all-time high certainly isn’t bearish. But it is strange that it has happened as breadth has been contracting, not expanding.
The consensus from the talking heads on TV was that last week’s Fed cut was a “hawkish cut” and that’s why interest rates rose. But the odds of two additional cuts this year are exactly the same as they were last week, and the 10-year yield is holding its recent breakdown.
The absolute speculative fever we’ve seen in some areas of the market over the past two weeks is completely unsustainable. The areas (nuclear, quantum, maybe even gold miners) are too small for us to say they have to have a negative impact on the equity market, but it does represent a tactical risk, especially with some signs that bears are throwing in the towel.
The smart money in the futures market (commercial hedgers) continues to load up on VIX contracts and the dollar. They aren’t short the equity market (in fact, they’re decently long both SPX and R2K contracts), but both the VIX and the dollar tend to be inversely correlated with equities, so it’s something to watch.
And last, can oil ever join the commodity bull market? The metals space continues to pay, but despite the poor trend, I like the risk/reward for both crude oil and energy stocks here.
This week’s report will review:
The bullish reaction to last week’s Fed cut
Key equity charts
Some minor issues I’m watching
Speculative pandemonium
Commodities
and more!
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