06Jun12:36 pmEST

The Final Stage of Bifurcation

Small caps, China names, regional banks, biotechs, and especially retail stocks (the latter, below, on the XRT sector ETF daily chart) are all leading the action higher so far today amid flattish action on the senior indices. What those leading groups today have in common, of course, is that they have been glaring laggards for a good while now in a bifurcated market, meaning a market with narrow crowded leadership at the top (e.g. NVDA) and tons of weakness brimming below the surface.

Bulls are extrapolating today's rotation as prime facie evidence of a healthy bull market in the making, with leaders taking a pause and laggards catching up. But the alternate view, as I take it, is that this rotation is a head-fake and not grounded in a solid bull market foundation. 

No, instead, this pop in the laggards is often the "last good try" in a bifurcated market to salvage the wide spreads we have seen for months on end between, say, semis and regional banks. 

But as the XRT goes from breakdown attempt back up to its resistance trend-line (arrows, below), it is likely just another shakeout of shorts before eventually heading back down and revealing the massive headwinds facing equities into bearish seasonality, namely The Fed/Treasury draining liquidity from the system and a richly valued, crowded market among recent leaders while the serious issues the laggards face have not come close to being healed. 

An Apple Event a Day Keeps R... Wildfires and Rate Hikes, Eh...


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