Keep A-Knocking (but you can't come in) - Morning Market Squeeze

Key Tactical Takeaways:

> As growth and value continue to duke it out, we think it's a question of when, not if the ratio will eventually break cleanly in favor of value leadership (see page 9).

> While IWM’s recent rally off former channel resistance is very bullish, historically rallies above 5 ATR > 50-DMA are hard to sustain without ST digestion. While this welcomes some tactical profit taking, the short-term trend will target ... against ....

> LQD has now followed up on last week's constructive rotation with a close > ... to generate meaningful bullish escape velocity. While the short-term may remain turbulent, stay long against ....

> For the first time since the start of the post-10/29 rally, XLF’s short-term momentum looks tired. If this attracts profit taking, ... must hold to prevent a larger correction to ....

> Although the VIX has shown noteworthy stability in recent days, it must close > ... for an uptick in volatility to gain traction for a sustainable period.

Some Quick Thoughts:

Keep A-Knocking (but you can't come in) was a popular rock, pop song from 1939 that, if you heard it, would probably cause you to break out into a little ditty just because it's such a great tune. When it comes to recent market action, the growing train of vaccine-related headlines has caused the all-important growth/value ratio (see page 9) to knock on critically important support. As of Monday's close, however, even in the wake of Moderna’s far more favorable vaccine news, which touts higher effective rates and vastly improved storage temperature requirements vs. Pfizer’s entry, this support line has not allowed value leadership to enter the next stage of escape velocity.

Technically, there is a very interesting dynamic at work across stocks that are benefiting most from the hope surrounding recent vaccine headlines. Specifically, Monday's Moderna news seems to have pushed many value stocks into the next rally phase that follows the initial "breakaway gap" caused by last Monday's Pfizer news. Even though this action is quite bullish and follows last week's favorable breadth thrusts, all of which we believe will lead to value eventually earning the escape velocity discussed above, we question if this strength can go uninterrupted without a short-term correction.

Bottom line: Structurally, as we showed in our latest Weekend Macro Press, intermarket analysis tells us the appetite for natural resources, high beta and both domestic and international high yield stocks is forcing key ratios vs. things like safer consumer staples, Treasuries, low beta stocks and gold to rotate into new tactical uptrends. While it remains our long-standing view that risk assets are poised to trend higher through 2021, we do not hide behind the safety of trends. As we showed on Monday (the study is still on page 8), instances where the S&P closes > 13% above its 200-DMA often lead to ... in the 1-4 weeks following such a development, before ... start to reaccelerate through week 12. Quite honestly, it's a tough call right here. However, if pressed, we'd suggest that with mountains of cash waiting on the sidelines and this market's complete ignorance of the dark winter that awaits in regard to coming lockdowns in the absence of a vaccine release, we're only willing to.... If anything, ... look like a far more interesting tactical short play.

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