Sven Henrich via Northman Trader

The broader market has been in a trading range for the past 6 weeks. Following the June highs we’ve seen sizable corrections in small caps, banks and even the $NYSE, $SPX, $DJIA, transports and other sectors while the Nasdaq continues to race to ever more new highs with a few key stocks producing the largest make cap expansion in history.

While charts of tech stocks are stretching to ever more historic extremes $SPX has held key support at the daily 200MA and weekly 50MA as historic stimulus continues to flow through the system with likely more stimulus to come.

In context of this price action Guy Adami, Dan Nathan, and I have decided to offer an as honest and objective discussion about the bull and bear case arguments as we know how to.

Also of key note: Bank earnings are coming next week and they will be closely watched for either relief on lowered earnings expectations supportive of a potential rotation trade to lift markets higher beyond the June highs to perhaps fill the glaring open gap on $SPX near 3,300 or confirmation that the bank’s underperformance in context of yields remaining on the floor signal something amiss with the V shape recovery narrative presumed by investors as they relentlessly chase into tech stocks in complete disregard of valuations.

Since the January 2018 highs the divergence in everything in markets couldn’t be more stark:

With key tech stocks literally exploding vertically in performance:

$NDX is now the farthest disconnected from its daily 200MA and weekly 50 MA since the year 2000 with the chart showing the steepest and most one way rally since that time as well, while equal weight continues to lag dramatically:

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Right at the time when $NDX has reached a key trend line with underlying components below their daily 50MAs weakening a process that has repeatedly signaled an impending correction to come:

Notable also as $NDX is reaching far above its monthly upper Bollinger band:

The chase into individual stocks in complete disregard of the historic valuation expansion is something to behold, $TSLA being one of the poster children of this time:

Blinders on and go. “Oh Jesus Christ”:

Is it sustainable? Or is the bull case which is based on earnings, valuations, debt expansion not mattering, indeed nothing mattering but liquidity the continued path forward? Or will rotation into the laggards produce the next leg up? Or will it all come crashing down? Or will we just chop in a wide tradable price range for months to come as the forces of momentum and liquidity keep battling it out with the reality of growth, valuations and a continued uncertain future?

All these questions are the basis for our discussion this week.

We hope you find this to be an as earnest, balanced and realistic discussion as you can find anywhere. As Guy said rightfully, we can’t change who we are, but only offer our honest assessments based on decades of experience with a close eye on all the things we see.

I’ll be posting a separate Market Video focusing on the latest technical implications this weekend (For those not already signed up for these videos please see link to sign up).

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All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.