• Comments for July 9, 2018

    The unemployment data of Friday helped discounting the Chinese trade issues and pushed markets higher.





    Among all the sectors that went higher, the most interesting was the biotech sector (IBB). IBB is I believe a concentration of what has occured to the general market in past years: a few overweight stocks have pushed indexes higher due to ETFs which force investors to follow the leading stocks.

    For example, on Friday BIIB which makes 7.8% of IBB had some good review/results on a leading alzheimer drug and gained 16% at the open. IBB hence opened up by 1.01% (0.91% of this gap up was due to BIIB only.) IBB gained 1.037% for the day, with 0.93% - the big chunk of that gain - coming from BIIB.



    However, we can see below that AMGN, CELG and GILD all attracted good money and broke out... even though they are not making a competing drug to BIIB.









    The same issue is taking place on a much larger scale on the NQ100 and the S&P500 as a few NQ8 very liquid stocks have been attracting all the available liquidity, forcing the general markets higher due to ETFs popularity.

    If we get a closer look at the most popular ETFs: QQQ/SPY, we can see that the price bounce is not bought.





    On the Treasuries front, we can see a continued negativity.





    Finally, the Canadian market hardly attracted money on Friday. Hence, the good expectation in the US is being translated as a negative expectation for the Canadian economy.



    Conclusions:

    I do not want to sound overly pessimistic here, but I wonder how much higher investors will want to climb their wall of worries:
    - Chinese trade issues (shrinking revenue)
    - QE unwind (shrinking liquidity)
    - Higher rates (shrinking margins)

    The coming earnings season could very well decide the fate of this market: if some NQ8 stocks fail or guide lower, then ETFs selling could easily push prices lower on consecutive down gaps.