• Weekly Comments for April 25, 2016

    In Friday's comment, after the MSFT and GOOGL misses, I wrote: "I believe that we are where "value" is meeting "liquidity." If the BOJ's intervention does not help produce a strong bounce, then fear could entice sellers to get out of tech stocks before AAPL's earnings on Monday."

    The Yen was indeed flushed hard, which in itself is positive for US equities and risk assets in general such as junk bonds.







    The VIX remained under selling pressure, a sign that algos were detecting money.



    On top of that, selling continued in 10Y and 20Y Treasuries.
    Where was money going?





    Money moved slightly into cash, but this was not very impressive.



    Furthermore, the Euro selling seemed to be sending money into US$ and US$ assets.



    To compound the issue, we had continued selling on the largest US stocks, together with continued selling in the NQ100.





    The consequence was small caps outperforming, because money had nowhere else to go.



    We can see below that the 20DMF was under heavy pressure, while IWM closely followed the Cumulative Tick. This shows money coming into the general market but large investors selling this market because of valuation issues that started to show on GOOGL and MSFT.



    These valuation issues could show up again for AAPL (Earnings have been delayed one day to Tuesday morning.)

    There is some speculation that AAPL could do better than expected. (Markets expect slowing iPhone sales, but this is already priced in.)



    Let's now have a look at the commodities based sectors.

    Oil is still doing fine, but the uptrend does not seem to be attracting buyers anymore. Probably another valuation issue.



    XLE seems to be weakening somewhat.



    XME is also weaker.



    But so is gold, which pushed gold miners into a short signal.





    Conclusions:

    We are certainly not in a "normal" market. There is ample liquidity to push equities higher, and hence, shorting the general market is not advisable.

    Monday will still be speculative: with the valuation issues related to large stocks, then speculation about AAPL will probably put a lid on a possible market bounce. However, the bad news might already be priced in for AAPL.

    Under the present circumstances, the logical pair trade would be to be short gold miners (GDX) and long small caps (IWM.)

    But, if you believe that AAPL will "bounce the markets" on Tuesday, then buying QLD Monday weakness could be a good option.