Market review 23.04.16

Disinflation, tech micro rotations, and much more

Hello everyone,

A quick note:

As these Sunday blog posts rely on my weekly tweets, I created a private Twitter feed where I can post exclusive content and interact with members throughout the week. In the future, I will likely be posting less on the public Twitter account and more on this private one. Members: Please check your e-mail for instructions on how to join if you haven’t already.

Now, on to our weekly recap. There’s much to cover concisely.

The market’s message

We can show in many ways the market’s disinflation theme that I’ve been reiterating every week here.

First, there’s the YTD performance of major futures contracts. This year’s winners are equities (led by the Nasdaq), gold, and bonds. Oil has been muted, and natural gas has been a complete disaster.

Second, my ETF leadership board shows the same thing. Tech, crypto, and gold continue to dominate leadership. Banks, natural gas, and commercial real estate remain weak.

Third, many ratio charts clearly show what’s been happening. Below is just one of many: GDX vs. XOP.

What’s so special about this ratio? Oil is more sensitive to inflation than gold as it goes into everything, but gold is sensitive to bond yields, as interest can be thought of as the opportunity cost for holding shiny rocks.

The above chart shows that in the 2010s, we had disinflation. GDX outperformed. But from ‘20-22, we had inflation. Guess what? XOP outperformed.

Since Sep ‘22, we've returned to disinflation. I expect it to continue for a bit longer.

A similar picture can be seen in ratio charts for value vs. growth, banks & oil vs. the Nasdaq, and even the world vs. the Nasdaq.

While the leadership board now shows many global regions (mainly Europe) at 52-week highs, EFA:QQQ is pressing resistance after a big failed breakdown!

I’ll now go over individual parts of the market, looking for the best trading ideas within the leaders. The above chart naturally leads me first into…

Tech

Not only has there been a rotation back into tech, but there’s been micro rotations within the vast tech landscape for almost a year now!

It began with solar last May, biotech in June, and IoT in July (this linked post also showed home builders hitting mega support. They are up more than 30% since).

By Fall, Semis picked up, followed by China tech. KWEB doubled in a few months, as we heard the “China re-opening” narrative. Semis & robotics have been the longest-running theme in tech as the AI narrative certainly has been a powerful one.

But now, crypto and their related stocks have emerged after a string of bankruptcies in this space.

Below is the current tech leadership board. Again, you can see names like RIOT, MARA, etc., dominating.

I discussed the setup in ETH last week (which has now gained over 12%), but I missed the move in the crypto stocks.

These moves in specific tech segments tend to happen in spurts, as the original chart in this section shows. Crypto stocks are extended here to chase. So, what looks good in this space right now?