The rally, while no longer stealth, is still very much unloved. And yet, it’s clear, fence-sitters are paying attention and taking action. This was one of the worst starts to a new year ever, so everyone that preached “buy low and sell high” had to be licking their chops, right?  Of course not. Most experts bought into the more room to the downside and are now locked into a battle with their egos.

Chase Or Get In On The Next Dip?

With the latest buzzword in the market being “inversion,” it wasn’t a surprise to see the Real Estate (XLRE) sector move to the top of the pack, and other traditional winners (when this recession-signal is flashing) also fared well: Utilities (XLU) and Consumer Staples (XLP). Historically, the only sector that moves lower over the next 12 months after a bond yield inversion is Energy  (XLE) (see table).

With that being said, this isn’t like other times when bond yields crossed, (two-year yield above the ten-year yield) as there are so many other intangibles. There’s the Federal Reserve, the War on Ukraine, runaway inflation, and the lack of confidence in anyone at the highest levels of the most powerful agencies to get the job done. In many ways, the market rebound is a vote that corporate America is still up to the task of excellence.

Mega-Cap – Mega Influence

Look at the big names go!  Apple (AAPL) rallied for the 11^th consecutive session, as money continued to rotate out of oil names and some Financials (XLF).

The Buy Signal

Oops, there it is. For the first time since January 4^, there were more 52-week highs than lows on the NASDAQ Composite. This is an easy, but very effective buy signal. It has to happen for a week or so and show sequential improvement like what we see on the New York Stock Exchange (NYSE). Moreover, the overall volume was very convincing.

Market Breadth	NYSE	NASDAQ
Advancers	2,744	3,649
Decliners	641	1,222
New Highs	117	92
New Lows	74	77
Up Volume	4.05 billion	5.01 billion
Down Volume	1.02 billion	996.85 million

Consumer Confidence

Consumer confidence edged higher, surprising the pundits; while that’s admirable, we cannot ignore expectations, which  slipped to the lowest point since 2014. I’d like to see this firm up as recession pressures build. The Conference Board sees the report confirming economic growth in the first quarter.   

The JOLTs report was strong, and ‘quits’ remained higher, with job switchers handsomely rewarded.

JOLTs	Feb	Jan
Openings	11.26 million	11.28 million
Quits	4.35 million	4.25 million

Technical View

The S&P 500 closed above the pivotal resistance point, and there were three additional metrics and actions that are very positive:

• Strong gap opening to the session – maybe it gets tested and closed as support – heads up to those still waiting for a knock on the door for a personal invitation to get into the mix.
• Volume picked up, and while not as high as I would like, it was the best in a week.
• Relative strength is clearly sending a buy signal.

There are pockets of resistance every twenty to thirty points until the ultimate test at 4,800. Remember, the S&P 500 is still down 2.8% year-to-date. At the very least, it’s time to seriously consider the weightings in your portfolio. There is still a need for balance and safety, but what constitutes those is changing.

Note: It’s been a heck of a move, and it has to be tested, which is fine with me; the sooner the better, but I cannot ignore what this market has done when virtually every guru on the Street has been nonplused.

Russell 2000

The Russell 2000 has shown flashes of wanting to come to life all year long, but such a session is often followed by terrible down days. A part of the excitement in the Russell 2000 has been the performance of AMC Entertainment (AMC) (I own $50,000 worth on a spec portfolio), which has done it again with a massive, short squeeze. And it looks like the big boys have done it again, halting trading to slow the momentum yesterday.

Individual investors are rejuvenated, but then again, they have been buying all year long, never forgetting the oldest axiom on Wall Street: Buy Low, Sell High.

Honestly, the kind of volume I see also suggests there are some hedge funds in there as well. And they are more desperate than usual after trailing last year more than usual and laying an egg again this year.   I do worry they love to have their cake and eat it too by riding the wave higher afterward and then adding to the shorts.

Get ready for more shenanigans (missing buy buttons and trading halts).

Meanwhile, let’s continue to pray for all those fighting in the unjust war of a madman that it comes to an end soon.

Portfolio Approach Note:

We added to Real Estate yesterday in our Hotline Model Portfolio. Today, we took profits in several positions.

Today’s Session

The ADP Jobs report came in around consensus at 455,000 in March.  The trend of lower gains is a yellow flag, but many will brush this report off as not being comparable to the BLS report due out on Friday (remember the BLS number for February was 678,000 versus 486,000 for ADP).

The distribution was even across the board.

Hope for Powell

 After the close Lulu Lemon (LULU) blew away Wall Street consensus as consumers’ embraced new products, including the bliss-feel running shoe described as giving a bouncy takeoff and softer landing,

If a running shoe can deliver that then maybe Jay Powell can, too.

As for all the brooding that usually accompanies the 2 and 10 yield curve inversion, keep in mind the last four times its happened, the S&P 500 has gone on to rally 28.8% before the peak, which was followed by an economic recession.  

Comments

I want to personally thank you for forecasting this latest rally. I initiated a put spread on Feb 1, buying the SPY 440 put and selling the SPY 400 put. The market moved my way. On Mar 11, due primarily to your comments, I closed the position for a modest profit. The SPY has surged since. Thanks again. Charles Lucente on 3/30/2022 10:13:04 AM

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