Favoring IWM, XBI and KRE

PPI in the end echoed the hot CPI, and S&P 500 with Nasdaq tumbled with inflation plays (materials, energy, silver, gold, oil, copper) doing best, also in reflection of good manufacturing data affecting industrials the day earlier. This not only defers the rate cut bets as per Wednesday‘s article – worse, it also brings the unspoken angle that as we see inflation bottom around 3%, its next trajectory towards 3.5 – 4% year end could necessitate not just higher for longer, but also rate hike(s). So, forget Goolsbee‘s rate cutting optimism and get ready for questioning disinflation.

This brings several consequences beyond sectoral picks mentioned within the S&P 500 chart – HYG is keeping consolidating high ground, but isn‘t truly leading equities surge in 2024, and the S&P 500 momentum is slowing down significantly. Yet, I see signs of market breadth improving, and it‘s within interest rate sensitive sectors where that „shouldn‘t“ be present, yet it‘s still there – and tech is clearly faltering. That means to me we would get more of such wild trading range days such as Friday, which were good enough just for a series of fast, yet very profitable intraday moves, and allowed for swing trading open gains protection too.

Which way though would these wild ranges be resolved? Time to employ ratios – just like I do use sectoral ones such as XLF to XLU, XLY to XLP, or SPY to TLT, this is the time for IWM to SPY. And that‘s basing, coiling to break higher over the months rather than mere weeks ahead (think up to twelve months). I had been talking its coming breakout of the two-year base late 2023 already, as a really long-term outperformer.

Even though it‘s not attracting that much trading attention, the percentage of stocks reaching for new 2024 highs there, is looking much better than for S&P 500 or Nasdaq. For all the publicity SMCI is attracting Friday, this is not the top dog of Russell 2000, which barely declined. Tellingly. And another way to play it is by the spread long Russell 2000, short S&P 500 if you don‘t want Nasdaq directly.

One more aspect as to why the S&P 500 upswing isn‘t yet done, is the tax filing and cheque writing – more liquidity is to start first slowly disappearing from the stock market in Mar, more noticeably in Apr. Hence that even if S&P 500 faces decreasing momentum and rotation out tech, conditions favoring a rug pull aren‘t here yet. The clock is ticking though, clearly ticking.

In terms of individual stocks, AAPL and the 200-day moving aveerage are as much indicative of the S&P 500 path ahead as AMZN and NFLX. Key event is of course NVDA earnings Wednesday after the close, and given the price action so far, I lean towards initial caution followed by higher highs. Two more days to go here.

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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 3 of them, featuring S&P 500, precious metals and oil.

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Crude Oil

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Crude oil is readying a move into $81 - $82 zone, and that‘s not the final destination. In the weeks ahead, I‘m more bullish oil than gold.

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