Base Breakouts Abound As SPX Sits Near Top Of Range - Morning Market Squeeze

Key Tactical Takeaways:

>  Although equity breadth measures have risen to levels that typically indicate favorable forward returns lie ahead, these readings, when combined with newly elevated sentiment, suggest that ....

> With the dollar making another attempt at a tactical low, EEM and metals look vulnerable to additional weakness over the short-term, barring any game-changing news. This gains meaningful credence if DXY closes above ....

> After the intra-day chart of Monday's reversal showed 5 waves lower, the potential for SPY to break down into week's end is elevated. A ST breakdown won't officially start until a close < ....

> We see numerous opportunities where stocks in the ... sectors are starting to rotate out of large bases.

Some Quick Thoughts:

Somewhere around 7th grade, we're all introduced to the wonderful world of plate tectonics. When analyzing markets, we often refer to this science after long-term trends witness disruptive shifts. As the bottom chart on page 9 shows, the growth/value ratio is sending seismic waves across the investment community, as money managers now need to determine if the recent breakdown in growth and momentum stocks has the potential to cause lingering damage to their growth and momentum-heavy portfolios. When looking at this chart, our take is that while both the ratio and its momentum bottomed exactly where they needed on Tuesday to prevent damaging follow-through, the potential for such follow-through will ... in the weeks ahead.  

When it comes to the bond market, we have been focused on the strong correlation between inflation expectations and the S&P 500. Although the 5-Y, 5-Y Forward Rate has also undergone a seismic shift from higher to sideways in recent weeks, it too has not suffered a lasting breakdown yet. Although longer-dated interest rates have become extended and vulnerable to some mean reversion in recent days, the 2020 trend of reflationary rotation to higher rates stays firm against the benchmark 10-Yr yield’s...% level.

Bottom line: This week, we've seen equity breadth measures rise to levels that typically indicate favorable forward returns lie ahead. Unfortunately, tactically speaking, the combination of newly elevated breadth readings and newly elevated sentiment means that ...

Although we're waiting for better confirmation that leadership by growth and momentum stocks has actually ended, we do see numerous opportunities where stocks in the ... sectors are starting to rotate out of large bases. These are the areas where we’ll be looking for lasting price appreciation into year-end. Tickers we’re eyeing as long ideas include, but are not limited to, ...

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