Remember This: The Market is Not the Economy

It remains quite easy to become distracted these days, be it the persistent run-up in some cryptos and the general swirling headlines related to politics, inflation, the economy, summer, and the like. But, to me, the wobbling Nasdaq leaders are to be taken seriously, especially as they are now moving lower and apparently dragging the small caps in the IWM with them.

On the actual Nasdaq-100 Index (we often look at QQQ, the ETF derived from the weekly chart, below), the long-running bearish RSI divergence to price (bottom pane) shows us that overall Nasdaq strength may have, unbelievably, been most potent before the pandemic back in the winter 2020. That thesis may very well dovetail with the notion that the rally off the March 2020 was a concoction of a one-way, max pain trade, short squeeze, and overall liquidity festival.

But now that the re-openings are inevitable (or so it seems), the flip side of, "the market is not the economy" argument may very well be coming to fruition. Just as the market ignored a global economic shutdown (after a certain point, of course) back last March 2020, the tape is now ignoring blowout earnings in the "FANG" stocks, among many other tech giants. 

As a result, I like the risk-to-reward ratio for shorts in tech looking out a few weeks. The main issue seems to be whether bulls can stave off a broad market correction via supporting retail, energy, and materials. If so, it may be enough to keep bears somewhat at bay, even if tech resets into the summer. 

For now, the latest rallies in Ethereum and Dogecoin seem like the perfect mask to cover up the weakness in ARKK, TSLA, and now the FANG names, not to mention the harsh gaps lower in software and semiconductors.