• Comments for July 19, 2017

    Early in the day yesterday, the 20DMF indicated that buyers were interested by the slight down gap.



    On a 20 days scale, we can see that the markets have bounced for the past 10 days. Exactly after the Fed said that rates would not increase.



    That was a good message for funds to buy the largest stocks.



    Note below that among these are also AT&T and GE. AT&T is under pressure while GE is being accumulated.





    Small caps are slightly bouncing in terms of Money Flow.



    We can also see below that the small/large parts of the S&P500 Money Flow analysis points to both sections bouncing.



    On the index buyers, we can see continued weakness.





    Regarding income based assets, we can see that the Dividends sector has pushed above e-neutral, that US 20 Years Treasuries continue attracting money and so is VNQ.







    Conclusions:

    What happens in the stock markets is rather interesting.

    1. US Treasuries and Income based assets attract money
    2. Large caps attract money

    Where is this money coming from?

    3. Index followers are selling their ETF holdings. I believe that this money is used to buy US Treasuries, which are safer in a lower rates environment.
    4. US rates differentials with other countries are still going down (No carry trade flow of money)... But the differential is still positive, especially for Japanese investors who could still feel attracted by US Treasuries.

    For the flow of money into US equities, there are two possibilities:

    1. "Cash on the sideline" is being put to use in order to profit from stellar earnings of the mammoth stocks such as NFLX.
    2. I believe that fund managers are also facing the possibility of an opportunity loss if they are not more exposed to the largest stocks. They might have been reduced their short small caps position in order to hold more bullish positions.

    I believe that this is a short-term opportunistic trade. After earnings are out, then attention will focus on QE unwind and the narrative will change to the bearish side.

    For now, the game is related to the narrative of potential stellar earnings for AMZN, FB, GOOG, AAPL