Which Is It: "Rally Mode!" or "Rally Mode?"

How much steam is left in this move?

Technical Edge — 

• NYSE Breadth: 82% Upside Volume (!)

• NASDAQ Breadth: 81% Upside Volume (!)

• VIX: ~$25

Game Plan: Bonds, Dollar S&P, Nasdaq

Yesterday we noted that we were cautious bulls and that, with the markets down 6 out of 7 days, we couldn’t sell “into the hole.” That’s how you get your head ripped off in the markets.

Stocks are taking a little pressure this morning on the better-than-expected jobless claims result (with the idea that the Fed has more ammo to remain hawkish). I get it, but the Fed’s main focus right now is:

1. The CPI numbers and specifically, Core CPI.

2. The unemployment rate.

That said, the CPI print is next week and the FOMC event is on the 21st. The Bank of Canada raised rates 75 basis points yesterday and the ECB just raised by 75 bps this morning.

At the Covid low, we had a coordinated global effort from central banks to flood the market with liquidity. The Don’t fight the Fed mantra had traders getting long as a result. Does the same apply right now? With Global CBs hiking aggressively, could more lows be on tap?

I’m not aggressively bullish, particularly with stocks in a downtrend and with the major indices below all of the major moving averages. That tune can change, but not yet for me.

Bonds

Bonds rallied nicely yesterday and are gaining again today. That could give some reprieve to tech, but let’s not forget that the TLT made new 52-week lows earlier this week!

There’s some bullish divergence on the weekly chart when you look up at the RSI measure and a nice “look below” of the prior low at $108.12 before bouncing. Bulls can be long against the new low if they feel so inclined, but I am more using bonds as a guide on equities at the moment. 

About a month ago we asked, “What Are the Bonds Trying to Tell Us?”

The bonds were a warning for tech. Now the question is, will we see new lows in stocks? 

Dollar — UUP