The financial markets are telling us things are changing, although most people have no idea what is happening, because the market trend changes happen slowly over weeks and you can’t see them by loading up a Robinhood app that only shows you daily price movements, top 100 lists of stocks, and charts with zero indicators on them. Yesterday, the Nasdaq went up on a big point rally and that has excited many people, but when you look at a chart the rally is a bounce and the Tuesday’s action actually confirms one of the big trend changes that has happened. And that is that technology stocks, Nasdaq stocks, and past fad stocks are now the laggards of the market. Money is going more into energy, real estate, banks, and a few select reopening stocks.
Take a look at this chart of the S&P 500 and Nasdaq and you can see this dichotomy showing up in the market averages. I have both indices on this chart with the Nasdaq in black.
You can see from this chart how the Nasdaq suddenly diverged down and away from the S&P 500. Many Nasdaq 100 stocks are so beaten up and oversold now that they look like they are going to trend sideways a bit before they make a meaningful move one way or the other. The big question is going to be whether all of this represents a giant stock market rotation or the start of a mega top, which could last for months.
What is clear is that bonds are now in a bear market, as all the major bond ETF’s are trading well below their 200-day moving averages.
This time I have put the Nasdaq on black on this chart with the popular BND bond ETF so that you can see how bonds fell first and dragged the Nasdaq down with it. That is what has happened in the past three weeks.
And that is why so many fad stocks fell 20% and some even more than that. This bond bear market happened, because we saw a secular low in yields last year and are headed for an uptick in inflation. At the same time commodities made secular lows in price last spring (remember when oil futures went negative). These are the two major moves that have happened in the financial markets, because they aren’t just simple rallies or declines, but major secular trend changes leading to moves that will last for years. The bad news is that new secular trends last a long time so more hits to stocks are going to come on future bond market declines, the good news is that they have fallen fast enough in the past few weeks that some sort of bounce or pause in the decline is happening.
I talked about the markets with Jim Goddard of www.howestreet.com Tuesday afternoon.
Tonight at 7PM EST I’m going to present at a special historical conference being put on by the Future of Freedom Foundation titled The National Security State and the Kennedy Assassination. What I will be talking about is my book Why The Vietnam War? and how the situation in Vietnam became a big concern in the Kennedy’s Presidency in its first year.
One recent reviewer on Amazon wrote, “this book is a great read about a historical period I didn’t know much about. We all know about the US fight in Vietnam from movies and TV. But I hadn’t really given much thought to the events that lead to Americans fighting in the jungles of Southeast Asia. Michael Swanson does a great job in explaining the history of the region and what lead the US to this fight. He builds off a lot of the material in his previous book, The War State. Highly recommend this to anyone interested in history or politics. I am already excited about this author’s next book!”
The conference is virtual and is free to attend. To register just go here.
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