What A Great Way To Start The Week (Technically Speaking For 10/12)

Let’s start the week by looking at last week’s fund flows from ETF.com:

Both SPY and QQQ had outflows last week, although QQQ’s was massive. IWM stands in contrast. This partially explains why small-caps are doing better than larger caps right now. The long end of the treasury market also had a decent inflow of fresh capital.Only defensive sectors had outflows last week — which is interesting since these securities are rising relative to others. Financial services had the largest inflow. This is a bit odd since this sector is probably about to report increased losses and delinquencies caused by the Spring lockdowns. The other inflows were modest, relatively speaking.

Europe is experiencing a virus resurgence (emphasis added):

Earlier in the week, France, Europe’s second-largest economy, downgraded its forecast for the pace of expansion for the last three months of the year from an already minimal 1 percent to zero. Overall, the national statistics agency predicted the economy would contract by 9 percent this year.

The diminished expectations are a direct outgrowth of alarm over the revival of the virus. France reported nearly 19,000 new cases on Wednesday — a one-day record, and almost double the number the day before. The surge prompted President Emmanuel Macron to announce new restrictions, including a two-week shutdown of cafes and bars in Paris and surrounding areas.

In Spain, the central bank governor warned this week that the accelerating spread of the virus could force the government to impose restrictions that would produce an economic contraction of as much as 12.6 percent this year.

This is the same scenario that several Fed governors have warned about: a rising number of virus cases force localities to issue orders that slow economic growth. It’s a very real possibility this fall as flu season gets underway.

Minneapolis Fed President Neel Kashkari joined the chorus of Fed Presidents arguing for more stimulus:

MARGARET BRENNAN: So there’s just short of about two trillion dollars on the line here. This would have included aid to airlines, more jobless benefits, expansion of help to small businesses. Without that, what’s the cost to the American economy? What’s going to happen?

KASHKARI: Well, we’re going to continue to see a grinding, very slow recovery with thousands of small businesses around the country going bankrupt. That’s why it’s so vital that our elected leaders come together to take more action. You know, the job market today, 11 million Americans are still out of work relative to the job market in February. That is as bad as the worst job market during the Great Recession and the great financial crisis.

Since the last Fed meeting, Fed interviews and speeches have all highlighted this issue.

Let’s take a look at today’s performance tables:Last week was all about the small-caps. Today, large-caps took the market higher, with QQQ, OEF, and SPY occupying the top three slots. Small-caps also gained but to a smaller degree. And micro-caps — which were very strong last week — were only up marginally.The sector performance table shows why large-caps did so well. Tech, communication services, and consumer discretionary were in the top three slots. Staples was number four, but financials and health care — two other large SPY components — rounded out the top half of the table.

Let’s start with today’s charts:QQQ 1-day

This is the quintessential rally chart: prices were in a solid uptrend until they formed a head and shoulders reversal pattern. They then retreated to the 61.8% Finb level, just below the 200-minute EMA.IWM 1-day

In contrast, small-caps were in a downward sloping channel from the late morning until 2:30, when they staged a strong rally to the day’s high. They sold-off a bit at the end of trading.IEF 1-day

Finally, the bond market rallied at the end of trading.

QQQ 30-day

In my weekend recap, I noted that larger-cap indexes had rallied to a smaller degree than small-caps. Today’s activity on the QQQ chart broke through resistance in a very strong way.

Traders couldn’t ask for a better way to start the week. Let’s hope it continues tomorrow.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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