Markets holding up today - Trading Journal (11.10.20)
There are more indicators underneath the surface of the market showing signs of weakness. Yet markets have made all time highs and rather than rolling over has held its ground and continue to consolidate and potentially have another uptick.
RSI is rolling over but MACD is rising and appears to be in a positive divergence. Prices has gaped up last week on consecutive days and by Monday morning the main reason to this was likely the Pfizer news of creating a vaccine with 90% efficacy. The Monday morning gap was sold into through out the day and through Tuesday, yet markets closed slightly lower without continuation to the downside. There is potential for continuation to the upside but we shall see.
Small Cap beating out Tech
Through the years high growth in tech stocks have held most of the gains over time, but this Monday something big changed. The FANGM stocks, FB, AMZN, AAPL, GOOGL, and MSFT were sold off while small caps such as IWM was bought. The difference was very noticeable as IWM basically increase the same amount as tech index QQQ.
That is proof investors are leaving tech and hopping on the small cap band wagon. Can this continue?
Fundamentally investors have been investing in high growth tech stocks with the mindset of inflation as interest rates are getting lower. Well TLT has been moving lower after the elections and is trending down. The FANGM play was really to fend off low interest rates but if rates are climbing the holdings in FANGM will likely continue to lose its luster. Yet here is the thing, rates can only rise so much before it hinders the economy and the FED will likely intervene.
In all likelihood rates in US bonds will likely be cap up to a point, and when that happens traders will likely exacerbate the move forcing bond prices to rise due mostly to lack of supply. FED will buy bonds until they cap rates.
With all that said I am leaning bullish on the markets until tables turn on bonds and volatility. The VIX is hitting lows and potentially can drop to its gap in March.
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