Five Charts to Start the Week
Some quick reminders before we get into it since there are more of you reading this now than there were last week. First, this is my diary on the market. It is in no way shape or form investment advice. These are the conversations that I am having with myself as I take in all that is happening in the market while trying to square it with the prevailing narratives and fundamentals. I do this to give some clarity to my thoughts. If you like what you are reading, please consider passing it along to others who might like it as well.
Next, if you have an opinion, I would love to hear it, especially if you disagree with something that I am thinking. I promise you that after starting in this business as a summer intern at the New York Stock Exchange when I was 16 years old, I have extremely thick skin.
Finally, nothing I write here should be considered investment advice. It is highly likely that I have a different timeframe and risk profile than you do.
Did you hear? There is going to be a Fed meeting this week. Chairman Powell and the rest of the FOMC are going to get together and discuss the current economic environment and what they think the interest rate policy should be based on the environment. The media and a many analysts will make a big deal about the meeting, especially with yields moving higher of late, weighing on everyone’s favorite growth stocks. But in all honesty, there is only one chart that matters. Here are the assets on the Fed’s balance sheet. Print money, buy assets, support asset prices…this is pretty simple. All that matters for the Fed meeting this week is to determine if there is something that makes them change the path of this chart. If there answer is “nothing,” then asset prices likely remain in an uptrend.
If investors determine that there is not much to change the path of the chart above, then the case can be made that there is not much reason for the path of this chart to change either. Bitcoin traded over $60,000 this weekend. It was near $7,000 when I started to dollar cost average into the asset last April. As long as the Fed keeps monetary policy loose and accommodative, there is likely going to be demand for bitcoin for all of the reasons that we have discussed previously. I have been bullish the entire time and I remain bullish today, the trend is up and it has been since I began adding it to my portfolio. I have not written much on bitcoin lately, largely because there is not much that has changed with the trend of my opinion of it.
Last week we pointed out some important charts which were at levels where beginning to stabilize made sense. Later in the week, I highlighted what I thought were the three most important charts in the market right now. These charts remain extremely import for the overall health of the market. But to be perfectly honest, the market is pretty healthy. Last week, the five-day average of the percentage of stocks in the S&P 500 making new 52-week highs was 15%. Since 1982, this this measurement crosses above 15%, as it did last week, the S&P 500 is higher 63 days later, 72% of the time for a median gain of 12%. By the way, in the bottom of this chart is the SPDR S&P 500 ETF (SPY) closing the week at record levels. New highs are not unhealthy.
The iShares Russell 2000 ETF (IWM) also closed at a new record high, that is not bearish!
Michael Batnick asked an interesting question in his blog over the weekend: Why Do Some People Hate Cathie Wood?
I think the answer is pretty simple…schadenfreude, pleasure derived by someone from another person's misfortune. The institutional side of this business is extremely competitive. It is not enough to do well for some of these money managers but they want to do well while their competitors do poorly. I have seen this first hand while spending a decade with institutional money managers as clients.
The investors who manage money for other people are in a constant state of competition for dollars to manage or assets under management. Now, there are some who claim that this is not the case, but I believe that they are few and far between. The simple fact of the matter is that for every dollar that goes to Cathie, it is a dollar that another manger does not get. Why are do people hate Cathie Wood? Because she is taking money from their pockets and food from their families’ tables. I think it is that simple.
Last week we highlighted that Cathies flagship fund was at a level where it made sense for a rally to take hold. Here is what I had to say: my variant view is that high multiple stocks do a good job of absorbing the initial shock of higher rates and they end up outperforming over the next three - six months. The ARK Innovation ETF (ARKK) chart is going to be busy here to prove a point. The fund has traded down to the level that marks a 38.2% retracement of the March - February advance (read about why that may be important here). That level also coincides with the anchored VWAP from the March lows.
And guess what happened last week? The fund did not cut below the previous week’s low and put in a strong rally. If there is upside follow through this week, Cathie’s haters will have to rethink their views, but they probable won’t
*Nothing in these pages should be considered investment advice.