The Markets Are Having Difficulty Making Upward Progress (Technically Speaking For 5/3)
Summary
- Dallas Fed President Kaplan is arguing that the Fed needs to taper bond buying sooner rather than later.
- Global manufacturing is doing very well.
- The markets are having a hard time making upward progress.
Let's take a look at the YTD performance tables to get our bearings on the week:
Source: StockCharts.com
The reflation trade is still the big winner on the year with large-caps showing some solid gains. Overall, however, not much has changed from last week's tables, which is due to last week being little more than a nothing week.
Source: StockCharts.com
Let's start at the bottom, noting that defensive sectors occupy the 9-11 spots. Technology and consumer discretionary -- two key sectors for the SPY and QQQ -- are just above the bottom three, which explains why large-caps are weaker YTD than smaller-caps. Interestingly, communication services -- which are a close relative of the tech ETF -- are number four and are up nearly twice as much as the XLK. Energy continues to be the top-performer on the year.
Dallas Fed President Kaplan is arguing for a tapering of the Fed's bond purchases (emphasis added).
Signs of excess risk taking in financial markets show it’s time for the U.S. central bank to start debating a reduction in its massive bond purchases, said the president of the Dallas Federal Reserve, breaking ranks with Chair Jerome Powell.
.....
“We’re now at a point where I’m observing excesses and imbalances in financial markets,” said Robert Kaplan during a virtual event Friday. “I’m very attentive to that, and that’s why I do think at the earliest opportunity I think will be appropriate for us to start talking about adjusting those purchases.”
There's a split among Fed presidents about how much to pay attention to market signals. Kaplan obviously takes it very seriously.
Global manufacturing is rebounding:
Manufacturing production increased for the tenth successive month, led by solid expansions in the euro area (near survey-record growth), Australia, the UK and the US. Expansions were also signaled in China and Japan. By sector, growth was registered across the consumer (two-month low), intermediate (four-month high) and investment (129-month high) goods industries.
Underpinning the latest increase in output was a further substantial improvement in intakes of new work. Total new orders and new export business both rose at the quickest rates since May 2010. The outlook for the global manufacturing sector also strengthened, with optimism about future output levels remaining among the best signalled in the series history.
This is one of the strongest reports I've seen in some time.
Let's take a look at today's performance tables from StockCharts:
The indexes were up modestly. The biggest gainer was the IWC, but it only rose .66%, which isn't that large an increase. Larger-caps were up modestly, while the QQQ dropped .57%.
Only six sectors were higher. Energy -- as usual -- had the largest gain. Basic materials and industrials -- two key members of the reflation trade -- were the second and fourth best performers.
The three month charts show that the markets are having a very difficult time moving higher.
DIA 3-Month
The DIA technically broke through resistance today. However, the ETF printed a very narrow candle and is just above key levels.
SPY 3-Month
The SPY broke through resistance and then moved lower during the session, closing modestly below key levels.
QQQ 3-Month
The QQQ moved lower today and is now right above the 20-day EMA.
IWM 3-Month
The IWM is still mired just above the EMAs.
Considering the news, you'd think the averages would be moving higher. But they continue to have problems making advances. That does not bode well for the rest of the week.
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