Stock markets: is the worst behind us?

Another interesting week in stock markets is behind us. Week began with a controlled sell off on low volume. Wednesday was a turnaround day and we finished the week higher. Most of the indices closed higher this week. QQQ and SMH are still lagging S&P500; while some old leaders IGV and CIBR, try to take back leading position. New leaders XLE, XLF also held well during this week.

I did not sell any of my positions, just rearranged my portfolio from technology to cyclicals.

SPY managed to regain 10 SMA weekly, QQQ is still trading below it.

Are traders willing to risk more or less?

Is sell off over, are stock market internals improving or deteriorating? Let’s take a look at what my models have to say.

Longterm main model

Both main models remain bullish.

Weekly Socha Investing Longterm model remains bullish, no signs that one should start moving to cash or bonds.

Daily Socha Investing Longterm model issued this week another buy signal based on Bollinger bands width. It is a reliable buy signal and it occurs after stronger pullbacks, see chart below for more information.

If you want to learn more about my models please check this link. (Just in Slovene for now)

Midterm main model

Also my midterm model remains bullish, no sell signal. Volume and adv/decl oscillators are both in uptrend and in bullish zone. I would like to see more improvement in still with a move above green lines.

Nothing more to comment here – bullish!

If you would like to learn more about Midterm model follow this link. (Just in Slovene for now)

Outperforming/underperforming sectors

Outperforming sectors

Software stocks IGV and Cybersecurity CIBR stocks gained 5 % this week, trying to take back market lead.

Energy XLE, Financials XLF and Regional Banks KBE also gained this week. All of them finished at 52 week highs.

India INDA broke out this week after several weeks of consolidation and closed at ATH. This is very healthy and bullish.

One sector that I would like to specially point out is Russia – RSX. Mostly composed of energy stocks is driven higher also by favourable movement of USDRUB pair. See charts for comments.

It is a bit extended short term, if it can remain overbought that would be a very bullish development for this region.

Underperforming sectors

Almost all sectors gained this week. I would continue to avoid GLD, TLT and healthcare XLV in the near future.

QQQ and SMH are still underperforming S&P.

Latin America bounced this week, but overall still in bearish trend. Stay away for now.

We should keep an eye on ARKK which looks like it had a false breakdown .

China FXI, MCHI also looks like it may have bottomed. It will not go straight up, pullbacks are expected along the way especially in the first months.

Risk ON or OFF environment?

This week markets leaned even more toward RISK ON environment.

SPX is outperforming majority of defensive assets like XLU, XLP, TLT, GLD. Junk bonds JNK are outperforming US treasuries IEF while High Yield bonds HYG outperform TLT.

Additional Risk ON sign is that traders are piling into Crypto – GBTC

Conclusion

Both Longterm and Midterm Socha Investing models remain bullish markets. Midterm model issued new buy signal on Thursday.

Newhighs – newlows indicate that we are climbing Wall of worry. No signs of bigger correction on horizon.

Sectors that remain strong – Russia, India, Energy, Financials, Software and Cybersecurity

Keep an eye on China for potential bottom.

Avoid Gold, Treasuries, Healthcare and Latin America.

Stay bullish, stay healthy and good luck.