OLD TECH LEADERS RESUME PUSH TO TRY FOR HIGHER HIGHS -- THE FINAL READING ON Q1 GDP MAKES Q2 GDP VERY IMPORTANT -- 30 YEAR BOND TURNS UP AGAIN -- IEF - 7 TO 10 YEAR BOND FUND IS PUSHING HIGHER -- HYG IS SOARING TO NEW HIGHS
OLD TECH LEADERS RESUME PUSH TO TRY FOR HIGHER HIGHS... While the Nasdaq 100 ($NDX) shown in Chart 1 has pushed above the March 6th highs, some of the high momentum leaders like Amazon (AMZN) have remained well back as shown on Chart 2. AMZN is still struggling with the 200 DMA. Stocks like Google (GOOGL) shown on Chart 3 are not back to previous highs, but are getting close to those levels.
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Chart 1
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Chart 2
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Chart 3
The old soldiers of Apple (AAPL), Microsoft (MSFT), Intel (INTC), Google (GOOGL) and Oracle (ORCL) have all been stronger. This is causing the market to appear fragmented and it appears to be moving towards high cash flow and high net income names to weather any GDP related storms that might show up in the second quarter. While we have seen this for a few weeks now, it seems to be getting stronger and stronger. Right now Ebay (EBAY) and Amazon (AMZN) are the bottom two on the Performance Chart shown as Chart 5 over a 200 day period. Google has immense cash flow, but it is just middle of the pack right now.
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Chart 4
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Chart 5
THE FINAL READING ON Q1 GDP MAKES Q2 GDP VERY IMPORTANT... Most of this could just be safe positioning on US GDP ($$GDP). The high cash flow , strong net income companies are more sought after in difficult economic times. While we don't know what the Q2 GDP is, this defensive posture by investors will probably still have upside if the GDP for Q2 comes in fine. Chart 6 shows the red GDP reading and we can see that the period around 2007 started with a red GDP and then went positive for a few more quarters before rolling over. So far it seems as though investors expect the Fed to step in right away if the economy slows, and if the economy (GDP) resumes speed then the equity market is all right for the time being. Win-Win for both? This makes the data over the next month a collection of very interesting data points because of the negative for the first quarter.
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Chart 6
30 YEAR BOND TURNS UP AGAIN... The 30 Year Bond Price ($USB) seems to continue to push higher in price, lower in yield with the weak economic data. In the latter half of July, we'll get second quarter GDP and the earnings period will start. The bonds are starting to push up in price here as shown in Chart 7.
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Chart 7
IEF - 7 TO 10 YEAR BOND FUND IS PUSHING HIGHER ... The Mid Range Bond (IEF) term continues to get bid up. We can see on Chart 8 it is not quite back to the all time highs for the fund. The real issue here is if bonds should sell off in a bull market. However, if you want to keep some exposure, most portfolio managers recommend shortening the yield. That continues to move money into this area.
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Chart 8
HYG IS SOARING TO NEW HIGHS... As everyone chases higher yields, this High Yield Bond Fund (HYG) shown in Chart 9 is soaring in price. This can reverse quickly if the market moves to safety and out of this particular investment style. It is following on the 4 year trend line now. If the economy starts to surge this will stay intact. If it doesn't, this will be an important chart to follow to gauge investor sentiment.
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Chart 9
Good trading,
Greg Schnell, CMT
