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Rolled Up Sleeve Stocks Are In

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  • The Federal Reserve continues to downplay the inflationary side effect of its policies, yet its own Beige Book is full of anecdotal evidence of its existence.
  • The New York Stock Exchange Advance Decline line (NYAD) is still consolidating after a multi-week run to new highs, which ended in mid-February.
  • Meanwhile the S&P 500 (SPX) survived its own dip below the key technical support level with its own RSI surviving a test of the 50 area.

By Joe Duarte

The Federal Reserve continues to downplay the inflationary side effect of its policies, yet its own Beige Book is full of anecdotal evidence of its existence. Specifically, the Fed's ongoing diary of the economy has multiple examples and comments documenting the fact that there are inflationary pressures building in a number of supply chains for producers and businesses. There is also building statistical evidence, which shows that inflation continues to build in the housing market and the grocery store.

As a result of these converging influences, we've seen increasing volatility in both the stock and bond markets. Nevertheless, the overriding influence on stocks remains the Fed's continuation of its QE, which puts $120 billion per month into the bond market with much of that money making its way into stocks.

Moreover, in this market, success depends on which stocks you own, and not necessarily which stocks are in the news. What that means is that with many high-profile tech stocks selling off, the Fed's QE liquidity needs to go somewhere. And for all practical purposes, that money is moving into a variety of sectors and companies, which are usually overlooked by the markets. Ironically, the driving theme shared by stocks that are breaking out is one of the companies, which actually make money such as those who provide:

  • Industrial processes
  • Applied technology and
  • Energy

Ironically, we may be entering an era where sexy tech is out and stocks with a working theme, rolled up sleeves, are in.

Bond Yields Enter Consolidation Pattern

As would be expected once the market became focused on rising bond yields, a phenomenon we described and traded successfully for weeks ahead of it being widely noted, US Treasuries have entered a consolidation pattern within the broad yield band of 1.2 to 1.6% on the US

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