The Yin and the Yang of the Stock Market

We started out this year thinking that the economy stagnates, and inflation has a second wave or a super-cycle.

At this point, with 5 months into the year, the recent economic stats still support that our economy is contracting.

But those numbers are looking back not forward. 

Risk factors which all turned positive this past week now suggest that perhaps we can look forward to a better market other than what we have just witnessed in the tech sector.

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With a market timing mechanism of a 2-year shorter term business cycle within a long term 7-year business cycle hence zooming out, the growth in chips and AI is in expansion.

The monthly charts of NASADQ 100 ETF (QQQ) and S&P 500 ETF (SPY) indicate that growth can continue upward if May closes out above the blue or 23-month moving average.

qqq spy etfs price performance analysis chart year 2023

The S&P 500 ETF (SPY) chart shows just how powerful that moving average is. SPY touched it, tickled it and is closing the week pretty much dancing on it.

On the other hand, the small caps, retail and even transportation are still weak.

If SPY clears 420 then it could see 440-450.

But what will small caps do? 

How long can the market hold up if we are seeing nothing more than a stagnating or worse, more contracting “inside economy”?

The Russell 2000 ETF (IWM) and Retail ETF (XRT) are at a completely different precipice than the SPY and QQQs.

The question is, will they contract more thereby failing the longer-term business cycle as seen by the 80-month moving average in green?

Or are they done contracting, thereby holding the 80-month MA and hence proving that we have seen the bottom of the trading range? (using October lows as major support) 

After a news-heavy week, our original thoughts about an impending super-cycle of commodities are back on the table. 

The CRB Commodity Index hit a 52-week low so what seemed so clear in January, has yet to play out in May, 5 months in.

For the next several months though, many inflationary bullets could resurface.

Watch the momentum (Real Motion) in the CRB chart which is bouncing off the 200-daily moving average (green).

And watch the price, especially if it clears back over 265. That to us would be a signal that commodities are ready to rise again.

Regardless, stagflation is our yin/yang scenario.

Looking back to past peaks -the one in 2000 and then the one in 2008 (which by the way had a lower high and a lower low than the one in 2000, it took until 2013 to see new highs. 

Now, with the peak we saw in January 2022, one has to wonder how many years it will take to get through 4800.

Stock Market ETFs Trading Analysis & Summary:

S&P 500 (SPY) 23-month MA 420 Support 410 

Russell 2000 (IWM) 170 support – 180 resistance

Dow (DIA) 336 the 23-month MA

Nasdaq (QQQ) 336 cleared or the 23-month MA-now its all about staying above

Regional banks (KRE) 42 now pivotal resistance-37 support

Semiconductors (SMH) 23-month MA at 124 now more in the rear-view mirror

Transportation (IYT) 202-240 biggest range to watch 

Biotechnology (IBB) 121-135 range to watch from monthly charts

Retail (XRT) This could be the new harbinger like KRE was in March. Poor Granny.

Twitter: @marketminute

The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.