Tech Rocking. Junk Struggling. Range Continues.

As I wrote about on Friday, almost every piece of really bad economic news has been met with a surge in buying, leaving a lot of people to scratch their heads. I am not that smart to understand why, but I always write that it’s not so much what the news actually is, but how markets react.Clearly, the markets have been squarely focused on a “V” bottom in the economy and stock market, something that hasn’t lined up with my thinking. That’s okay. This would be one case where I would love to be wrong.

Throughout Q2 so far, the bulls have been beyond impressive. There have only been a few small victories for the bears. This is all in the context of my thesis that stocks are in a roughly 10% trading range bound by 25,000 and 22,000 on the Dow. Last week, Monday began with the Warren Buffet bottom and ended at the high after another horrific jobs report. That puts the major indices within striking distance of the April peak.

When I look at leadership, it’s blatantly obvious that the NASDAQ 100 has a mind of its own. Software and Internet stocks are surging towards all-time highs. Semis, however, behave more like the rest of the market. Banks have gone from leader to the doghouse over the past 10 days. Discretionary acts well, but transports are clearly struggling, much to the surprise of no one.

High yield bonds, always one of my favorite canaries in the coal mine, have become much more difficult to analyze due to the Fed’s pledge to backstop this market and outright purchase junk bond ETFs not trading at a premium to their worth. Look at the chart below. Junk bonds haven’t participated in the rally since the Fed’s insane announcement in early April.

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Paul Schatz, President, Heritage Capital
Paul Schatz, President, Heritage Capital
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