After another week of green on my screen last week, the third trading week of 2018, here is where we stand in terms of some U.S. equities’ year-to-date performance: The S&P 500 as represented by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is higher 5.10% and the Nasdaq 100 as represented by the PowerShares QQQ Trust (ETF) (NASDAQ:QQQ) has already rallied just about 6.80%.
I want to continue respecting these up-trends but would be remiss not to point out that that in my eye we are getting very stretched for the time being.
Before looking at a couple of charts for perspective let me point out that we are in the middle of earnings season, which is set to intensify in terms of company reports this week. Earnings reports this week are on tap from many industries, including some notable biotechnology stocks such as Celgene Corporation (NASDAQ: CELG). Later this week and over the following two weeks we will receive an avalanche of large cap technology company earnings, which from my perspective have the potential to jolt markets.
Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Speaking of large-cap technology stocks, the QQQ ETF on the multiyear weekly chart has long overshoot the upper diagonal line of trend resistance while the MACD momentum oscillator at the bottom of the chart is in record territory aside from the dotcom bubble top in the year 2000.
As I have been discussing in this here column for the past two weeks, none of this is a reason to all out liquidate one’s long positions and short the market, but it does at the very least beg for some risk reduction as opposed to adding to fresh long-term positions in large cap technology land as a whole.
At this point in time no market missive would be complete without a glance over to the bond market.
Last Friday January 19th the US 10 year treasury note (Treasuries) broke above and closed above the 2.60% level. This is one of our Q1 themes and possibly beyond to see yields climb toward 3%. I have no definite answer at what precise level bond yields become more competitive to stock market yields, but my base case for now is that somewhere between the 2.60% and 3.00% mark stocks will at the very least begin to slow down their upside acceleration.
In summary, parabolic equity index charts combined with a breakout in bond yields does increasingly call for at the very least partial profit-taking in stock positions for active investors. As usual, we will take this one week at a time.
Check out Chris Tyler’s Trade of the Day for Jan. 22.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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