For the week, Small Caps were up +6% while the Nasdaq 100 (QQQ) was down -1.25%, making this spread in weekly performance the most extreme in 75 years.
Lurking in the background are two key longer-term indicators that are at historic overbought extremes; Margin Debt and The Buffet indicator (GDP verses Stock Market valuations).
However, both of these long-term value measures have been overbought for quite some time. Hence, these metrics are not very good for timing.
The highlights of this week's market action are the following:
- Risk gauges stayed green across the board The Q's flipped positive last but have been the laggard.
- Small Caps (IWM or Grandpa Russell) has the strongest TSI (TREND Strength Indicator) among all key stock indexes and currently working off overbought conditions
- Volume patterns show improvement, most evident in the regional banks (KRE) and certainly Oil and Energy Services, which have had a terrible year thus far.
- The Advance /Decline line looks poised for a major breakout after months of sideways action
- Rotation out of leading Technology Stocks (XLK) continues at a historic pace
- The Dollar is under pressure, trading under key moving averages in all time frames while the inverse is happening with the Chinese Yuan which is flirting with all-time highs
- Gold lost ground and needs to hold recent lows to stay in a positive mode. However, both gold and silver miners have caught some of the positive stock momentum and have held up.
- Emerging Markets continue to lead but they are running a bit rich short term indicating a possible pause.
- Developed countries are beginning a "comeback" and our ETF Complete Model is currently enjoying strong gains from three such countries.
As we wrap up the earnings season and move into a seasonally bullish time of the year, the trend to watch is the Small Caps or Russell 2000 ETF (IWM).
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