1) Bears Get Grinded Out… Again!
US markets managed to score a small victory today in the face of shaky European markets and geopolitical troubles in Turkey and other areas.
The S&P 500 hit an intraday high of 2168.35, putting it less than one point away from making its sixth record high in as many days.
The index rose just 0.2% on the day, though there were several signs of positivity below the surface, with traders taking what I'd call “selective risk-on” posture.
We saw notable outperformance in biotechnology (XBI) and large-cap technology stocks, with Apple (AAPL) managing to crack the $100 mark for the first time since June 6.
High-yield (HYG) was also strong despite a drop in oil prices. In recent months, high-yield and oil have been tightly correlated because of oil's affect on high-yield energy bonds.
Semiconductor stocks were also very strong after Softbank announced it would acquire chip designer Arm Holdings (ARMH) for $32 billion.
However, with Netflix (NFLX) down huge this afternoon on its disappointing ugidance, we may see a turnaround in tech tomorrow.
2) A Step Back
With the market well past the Brexit and flirting with all-time highs, let's take a step back and look at how far we've come.
So far in 2016, we've seen a major flip-flop.
In 2015, the big winners were biotechnology (IBB) and select large-cap tech stocks, most notably the F.A.N.G. (FB, AMZN, NFLX, GOOGL) names, which rose an average of 77.5% last year.
This year, the leaders have been what I call the G.U.T.S. complex — Gold (GLD), Utilities (XLU),Treasuries (TLT), and Silver (SLV). The G.U.T.S. trade is up 26.2% this year after falling -8.9% last year.
Why the change?
Simple — the Fed got dovish, other central banks are stimulus crazy, and fears of a global slowdown are everywhere. That's given instruments that benefit from low rates a big boost.
Taking a look at the broader indices, the S&P is up 6.1%, while the Nasdaq is lagging, primarily due to a huge drop in biotechnology.
However, all US indices are significantly outperforming Europe.
The Euro Stoxx 50 Index is down -9.7%, though to be fair, it's nearly recovered its post-Brexit losses!
3) A Warning in the Russell 2000?
This morning, Jeff Cooper of the Daily Market Report discussed the lagging action in the Russell 2000, which may be a hint of trouble to come:
This morning's report walks through another V Bottom by virtue of a Central Bank Slingshot following the Brexit Break, propelling a blow-off in the SPX and DJIA.
However secondary, indices such as the RUT suggests risk is hiding out in the larger cap SPX.
The same picture that has played out before past significant downdrafts.
Moreover, a big SPX time/price square-out is on the table going into a potentially important low to high to high cycle with this week also being an important anniversary.