You will note below that even though the 20DMF attracted much money, the Cumulative Ticks barely moved up.
As a consequence, the NHNL indicator displayed weakness yesterday.
This tells me that either the small caps will bounce hard today to follow the large caps or the market will collapse back down. But let's not anticipate the conclusions because there is more to read from the charts.
We can see below that the largest caps have been attracting the most money yesterday.
A sectors analysis shows that except for gold miners, everything attracting money yesterday.
I noted that biotechs were really strong, but that the defensive sectors were also up.
The weakest was clearly housing, simply because the 10Y rates continued to push higher and will probably test 4%.
Most importantly, the Yield analysis now clearly shows that equities are overvalued. Indeed, the horizontal Red dotted line is now below the Green one.
Conclusions:
Yesterday's move was clearly a shorts covering move that was linked to funds rotating out of their large caps short positions. These moves were algos and momentum driven. Value investing will roar back and I believe that equities will test their lows probably early or mid of next week (Next week is options expiration and hence it will be volatile.)
At the present corporate bonds rates, these instruments are more attractive than equities and hence money will move back out of equities.
However, there is a real opportunity to make money here by squeezing the small caps short investors, especially ahead of the options expiration week. Hence, we should expect great volatility in the coming days, especially around the small caps that will be bought today and Monday before following the general market back down.
Below are interesting stocks to short probably early next week. Beware of the coming earnings season though.
