Still A Bear Market

Authored by Sven Henrich via NorthmanTrader.com,

Don’t let new highs on Nasdaq fool you. It’s still a bear market and I can prove it.

First let’s acknowledge they are have and continue to throw the kitchen sink at this: Historic monetary and fiscal stimulus with more to come apparently as the powers that be are discussing another trillion dollar stimulus package on top of the $3 trillion they’ve already thrown at this and of course the Fed’s historic balance sheet expansion.

The latest round of stimulus talk again sparking another overnight rally in the US. But note the Fed’s balance sheet expansion has for now peaked in the 2nd week of June tor so, and magically did the S&P 500:

Fed balance sheet peaked during the 2nd week of June.
So did the S&P 500.

Go figure.

To keep history alive: All highs into Q4 and Q1 also came on balance sheet expansion. pic.twitter.com/gaD3NMljGh

— Sven Henrich (@NorthmanTrader) June 22, 2020

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Coincidence? I’ll leave that up to the reader to decide.

What is factual is that we are witnessing the greatest debt explosion of our lifetimes:

While all this is advertised as consequence free and the ingredients of a new bull market let me suggest that this is not how the broader market sees it. Not at all.

This entire market remains a tech affair while the rest of the market is indeed in a major bear market.

Equal weight tells the truth. Here $XVG versus $NDX:

$NDX making new all time highs on futures in overnight while the rest of the market in equal weight sits below the December 2018 lows when $SPX was trading at 2350.

Here’s the monthly big picture:

Tech is entirely decoupled from the rest of the market similar to the year 2000, and by tech we are of course looking at the historic distortion created by handful of mega cap stocks.

Looking at new highs on $NDX the underlying $BPNDX tells a story of weakening:

What’s propelling $NDX to new highs are of course the usual suspects.  I’ll highlight 3 companies, $AMZN, $MSFT and $AAPL, their market cap now exceeding $4.35 trillion equal to 20% of US GDP. Not bad with their employee base being equivalent to 0.34% of the US population.

Forgive me for showing linear charts, but the yearly charts have to be appreciated for the risk appetite that has investors chasing these stocks far above their yearly 5 EMAs and Bollinger bands:

The narrowest and most concentrated market cap risk ever. In the middle of a major global economic recession.

Yet the larger market says something completely different.

Look at $NYSE, the broader index, it’s a big fat rising wedge with an island reversal to boot:

MACD is down and it’s barely hanging on with an island reversal to boot. This is bearish full stop.

And we see similar charts on other indices:

Fact remains markets are tethering at major trend line support see also $DJIA:

And ironically all this is happening in context of this $QQQ chart:

$QQQ close to hitting a 10 year trend line while printing a massive negative divergence, a classic warning sign, especially in context of the historic extension we see in the yearly charts above.

So from my perch: Don’t be fooled by all this bull talk. The larger economy and markets are in major trouble. With all this intervention they’ve produced the largest asset bubble concentrated in a few stocks ever, a massive imbalance all of which bears major reversion risk.

If they lose tech for any reason it’s all over. Every fund on the planet is exposed to big cap tech, they’re all hiding in it from the SNB on down.

Bubbles defy reason and this historic set of liquidity injections have created the illusion we can print ourselves out of the current mess and as long as the liquidity equation retains control the asset bubble can grow, grow to become ever more of a risk to the economy’s long term health for nothing good comes out of a bubble bursting.

For now tech is in a liquidity driven bull market driven by a few stocks. The broader market is not:

Equal weight this:
Index performances YTD:$SPX: -3.61%$IWM: -13.81%$NYSE: -13.57%$BKX: -30.75%$NDX:+15.65% pic.twitter.com/dXh6OntN7i

— Sven Henrich (@NorthmanTrader) June 22, 2020

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Ignore the message of the broader market, and the banks in particular at your own risk. Their message: We’re still in a bear market.