SPX Grind Distracts From Small Cap Opportunities - Morning Market Squeeze

Key Tactical Takeaways:

> Although the VIX is spiking this morning after showing subtle signs of divergence against the S&P 500's higher highs in recent days, this divergence can continue to build against an ongoing melt-up in stocks pending a close < SPX ....

> With the S&P 500 and US$ now inversely correlated (see page 7), all eyes should be on DXY ... as a close > this level would place the $ back in a short-term uptrend for the first time since mid-November.

> Even as the dollar's potential tactical bottom would have bearish implications for EM stocks as EEM sits stretched above its widely-followed 50-DMA with lagging momentum, EEM's bull trend will stay intact against ....

> While Treasuries are bid this morning as the 10-Yr yield struggles to break > the ...% confluence after developing 5 waves up from the 11/20 low on Friday, ...% to ...% will remain attainable pending a close back below ...%.

Some Quick Thoughts:

Compared to a lot of humans, my dog, a beautiful 1-year old Maltese, is pretty darn smart. However, there is one trick that he always falls for. That trick involves my diverting his attention with a toy in one hand while using the other hand to grab him. Without such tactics, he is perhaps the most elusive creature on earth. When I think of the current stock market set-up, I am reminded of a similar distraction, where the benchmark S&P's slow bleed higher garners all media attention as numerous small caps stocks are starting to form foothills similar to those that preceded the parabolic small cap rally of late 1999/early 2000.

The Nikkei and Shanghai Composite both registered 5-day closing lows this morning, as the DAX is struggling to prevent such a development. In all cases, it is worth noting that short-term bullish trend stops are still holding at 26497, 3411 and 13195, respectively. Although the VIX is jumping this morning after showing subtle signs of diverging against the S&P 500's higher highs in recent days, this divergence can continue to build against an ongoing equity market melt-up pending a close < SPX ....

As we highlighted in Sunday's Weekend Macro Press, historic net-short positioning on the part of commercial hedgers is one of several indications that copper prices are growing close to a tradable top. This comes as historic net-long positions in 30-Yr Treasury futures by commercials warn that we must be on the lookout for any technical signals to suggest that the reflationary intermarket rotation of late is about to meet with meaningful mean reversion. Again, we cover these macro signals with much greater detail in our Weekend Macro Press.

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