Need More To Play This Breakout

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Includes: CRF, DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, LLSC, LLSP, OTPIX, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWL, RWM, RYARX, RYRSX, SBUS, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMH, SMLL, SOXX, SPDN, SPLX, SPSM, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TLT, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, USSD, USWD, UWM, VFINX, VOO, VTWO, VV, XLF
by: Macrotheme Capital Management LLC

Summary

Not seeing the structural blow-off trade.

Need to see a fundamental trigger to play this breakout.

Possible trigger - employment report on Friday.

The best trade is to be long when the stock market goes up - regardless of fundamentals. This usually happens near the top - it's the blow-off stage.

Last week, I noted that the key resistance on S&P500 (NYSEARCA:SPY) at 2400 has been broken, and raised the possibility that we could get this high-probability blow-off trade - long SPY into the top.

So, this is an update.

I noted that two key things must occur: 1) short covering, and 2) trend-following.

Unfortunately, I don't see much of the short covering, which is most obvious during the last hour of trading. Similarly, I don't see a follow trough on the breakout, which tells me that the trend followers are hesitant to go long on SPY and play this breakout.

It definitely appears that this uptrend need more to continue. Specifically, it needs a fundamental trigger.

Fundamentally, the major problem with the current breakout is the fact that the yield on 10Y TNote (NYSEARCA:TLT) is not participating - the 10Y yield has been falling, and is approaching the key support at 2.20%. In other words, bond investors don't see the reflation trade - which is what the stock market bulls must get.

However, the leadership is still good. Semiconductors are rising (NASDAQ:SOXX) (NYSEARCA:SMH), the FAANG group is rising, and Tesla (NASDAQ:TSLA) is actually right now at the all-time high - so the sentiment is good as well.

But, small stocks (NYSEARCA:IWM) are not participating in this breakout, and neither are the financials (NYSEARCA:XLF), which is consistent with the narrowing yield curve - and the absence of reflation expectations.

So, in conclusion:

I need to see more to play this breakout. Structurally, I'm not seeing the blow-off trade. Thus, I need to see some kind of positive fundamental trigger, which would push the yield on 10Y Note higher. Perhaps, we could get the trigger with the Friday's employment report. So, back on sidelines for now.

I will keep an eye on this potential high-probability structural blow-off trade, but also monitor the fundamentals. Updates to follow.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Intended for Accredited investors only.

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