This Is Not Normal Market Behavior

The stock markets rallied sheepishly into Friday’s job data, then apparently got what they needed to relax despite volatility in gold, interest rates and the dollar.

This is not normal market behavior.

The SPY was so relaxed by the report that its true range for the day was the smallest it’s been since Christmas eve in 2019.

Note, narrow ranges often lead to big moves as readers of our articles should know. So don’t let a lack of volatility fool you.

From the fundamental side, it appears that the report was perfect for stocks—not hot enough or weak enough to change the outlook for earnings growth which is what appears to be keeping the bulls buying and the bears at bay.

This idea is demonstrated by the fact that on Thursday, even without seeing the jobs report, Goldman Sachs raised their targets for the S&P 500 for this year and next. Their reasons for optimism were better-than-expected earnings and lower-than-expected interest rates.

This is certainly the current trend…

According to FactSet, 89% of S&P 500 companies have reported earnings, with 87% beating their earnings estimates, and 87% reporting revenues above estimates.

Goldman’s target of 4,700 (7% higher) for 2021 puts them at the top of the street’s targets according to Bloomberg.

Of course, not everyone cares about earnings growth, and I’m sorry I didn’t see this one coming…

Last week I noted that the weak Robinhood (NASDAQ:HOOD) IPO may set up an opportunity for an IPO day high breakout trade.

In short, the trade entry is a break over the IPO day high after a weak IPO that consolidates lower.

What I failed to remember is that HOOD and meme stock traders trade options, and the breakout happened on the day HOOD options started trading!

Barron’s reported….

“Just after noon on Tuesday, 75,000 calls and 95,000 puts had already traded in the stock, compared with 13,000 calls and 15,000 puts traded in Coinbase Global (COIN) on the first day that company’s options were available, says Susquehanna International Group’s Christopher Jacobson”

If you’d like to see another stock in the middle of an IPO breakout pattern, check out Clear Secure (NYSE:YOU).

Whether the bulls are relying on earnings or options trading, the one thing that seems to be remarkably discounted is the increasing spread of the COVID variant. Rising cases, deaths, and politically and socially controversial rules and mandates seem to be being ignored by the markets.

Or maybe not. Perhaps this is why a perfect jobs report didn’t spark a rally.

As you’ll read in this this past week’s highlights, the market’s momentum as measured by Real Motion, still suggest that weakness could lead to further weakness, so don’t be complacent.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

(links with a “$” will only be accessible by premium members)

• The Risk Gauge ($) moved back into bullish territory on the SPY.
• Major US equity indexes traded lower initially then rallied into the Friday jobs report, edging higher last week. The SPY closed an an all-time high, helped by the value stocks in its index. As noted here last week, the S&P 500 Value index tracked by iShares S&P 500 Value ETF (NYSE:IVE) broke above its 6-week range and 50-day average. It continued that breakout. This can also be seen in the VTV ($). The significance of this is that bull markets are much stronger when both SPY and IVE are in bullish trends.
• Daily Real Motion indicators continue to show bearish momentum trends in SPDR® Dow Jones Industrial Average ETF Trust (NYSE:DIA) and iShares Russell 2000 ETF (NYSE:IWM) and demonstrating resistance at current levels in SPY and Invesco QQQ Trust (NASDAQ:QQQ). However, the weekly Real Motion trends remained bullish in all 4 indexes. As a result, if QQQ breaks above its 200-day RM resistance, it could lead to an new leg up. Until then, weakness should be considered bearish.
• Volume Accumulation/Distribution measures were improved, but not noteworthy.
• The best performing sectors last week were Semiconductors—VanEck Vectors Semiconductor ETF (NASDAQ:SMH)—again (despite a weak Friday) and Financials—Financial Select Sector SPDR® Fund (NYSE:XLF). As noted here last week, SMH began the week on the verge of breaking out of its month-long range. This week’s breakout could indicate some new and much-needed sector leadership.
• The Financials (XLF and KRE) had big breakouts on Friday, driven by the rise in yields. As you can see can in here ($) , the Triple Play indicators are now bullish for the first time since they turned negative as KRE broke its 50-DMA in May. KRE still needs to clear its 50-DMA, but XLF is much stronger.
• The Materials—Materials Select Sector SPDR® Fund (NYSE:XLB)—was noted here last week as a sector leader on the verge of a bullish breakout. This week it consolidated, so remains a candidate for market leadership. The same could be said for the SPDR® S&P Homebuilders ETF (NYSE:XHB).
• Last week we noted that the only sector to decisively trend into new all-time highs was Health Care Select Sector SPDR® Fund (NYSE:XLV), which is also the only sector that has bullish readings in all 4 of the Real Motion and Triple Play indicators reported in the Sector Performance Summary table . It subsequently, rallied strong then pulled back to the 10-DMA (still higher for the week).
• Market Internals are at neutral levels , but continue to trend higher as they work off extreme oversold levels hit on July 17. Extreme oversold levels can set up extended moves higher.
• The New High/Low ratio has continued its bearish pattern of moving from above to below the 85 level. This is best seen on the NASDAQ chart . If the market pulls back, it will be concerning if the number of new 52-week lows expands to more than 200.
• iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) ($) got hit in reaction to the stronger than expected jobs report, but it’s sitting on support just over the 200-DMA with a bullish Real Motion divergence pattern. Further weakness would be bearish, but it would not be surprising to see it hold support.
• As noted last week, broke above its 50-DMA ($) but was sitting under Real Motion resistance and its weekly range would likely be pivotal. Last week it closed under that pivotal range, so more weakness is likely.
• Like CPER, oil (NYSE:USO) had rallied ($) into RM resistance (and has a short-term bearish RM divergence). After a weak week, it’s now under its 50-DMA. A break of last week’s low could lead to a significant decline. Energy stock ETFs—[(NYSE:XLE), VanEck Vectors Oil Services ETF (NYSE:OIH), SPDR® S&P Oil & Gas Exploration & Production ETF (NYSE:XOP)] did not rally with USO in the prior weeks, and look equally as vulnerable.
• Gold (NYSE:GLD) collapsed on Friday to its 1-month low range ($) , As noted here last week, a stronger dollar would be a headwind for this metal, and…
• Invesco DB US Dollar Index Bullish Fund (NYSE:UUP) jumped on Friday’s jobs report. This move came after correcting to support at both its 50 and 200-DMAs which are crossing to create a bullish phase. This is the first bullish phase in UUP since since May 2020. Long-term Real Motion indicators have a bullish divergence ($) pattern that has been developing in a ‘textbook’ fashion since January 2021. If UUP can break above $25, a major bottom may be in place.

• Currently Bitcoin is at $44,500, up 7% over the past 7 days after retesting support at $37,300.
• If BTC sees a daily close over $43,500 before retesting support at $40,000, look for $48,000 as the next major level to beat.
• The Altcoins market rallied consistently throughout the week following Ethereum's 25% growth, now looking to close over $3,000 for the first time since May 19.
• The EIP-1559 London upgrade went live on the Ethereum network this past Thursday with the most notable improvements being increased transaction speeds, decreased transaction fees, a change from proof-of-work to a proof-of-stake infrastructure, and the now consistent burning of ETH tokens that aims to turn the cryptocurrency into a deflationary asset.

Written By: Geoff Bysshe