Flight Path – February 1st 2021
Last week brought a sudden decline in stocks. The S&P fell almost 2.6% as volumes hit levels never seen before. A record high of 23 billion shares were traded on Wednesday. Corporate earnings, federal reserve policy, and even emerging dollar strength played second fiddle to the incredible story of the short squeeze of GameStop. Short squeeze events are not uncommon, Bill Ackman was burned shorting Herbalife, the Bank of England was caught offside in 1992 by George Soros, but the unique nature of this week’s headline was that the short squeeze of institutional hedge funds was driven by an online gathering of retail investors. Everyone seems to have a passionate opinion about the event. From social media platforms claiming to democratize finance, to politicians calling for new regulations to maintain price action at the estimated intrinsic value of each security?!? We see some wild behavior characteristic of bull markets and the presence of individual investors and traders that has not been felt for many years. What’s most important now is to stick to the discipline and not be swept up in the mania.
Given that view across global markets, the GoNoGo Asset Class Map shows that the major themes showing their first signs of change. Risk assets are still in favor, with commodities, and cryptocurrencies in “Go” trends. However, last week brought amber bands on both $SPY and $DXY, which suggests investors are concerned about the speculative excesses. Whether this will be short-lived or the start of something larger can be seen in the charts.
The GoNoGo Heat Map® above shows us the daily trend performance of five asset classes: Equities, Bonds, Commodities, Currencies, and Digital Assets from the US perspective.
Panel 1 – Stocks fell out of the “Go” trend that it has been in for several months as it painted an amber “Go Fish” band. SPDR® S&P 500® ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P.
Panel 2 – Government bonds, continue to paint “NoGo” bars, even strengthening to full purple “NoGo” bars at week’s end. $IEF tracks a market-value-weighted index of debt issued by the US Treasury with 7-10 years to maturity remaining.
Panel 3 – Commodities is a “Go” but is slowing slight weakness this week in the form of aqua bands. $USCI tracks an equal-weighted index of 14 commodity futures contracts and holds at least one precious metal, industrial metal, energy, livestock, soft, and grain commodity.
Panel 4 – The US Dollar fell out of the “NoGo” trend that it was in and is now painting amber “Go Fish” bands. $DXY is an index of the value of the United States Dollar relative to a basket of foreign currencies.
Panel 5 – Bitcoin’s “Go” trend resumes in full force this week as the strongest “Go” bars return.
