The Inflation Theme is Gathering Steam as Stimulus Weighs on the Dollar

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Key Points

  • SPY is Overbought; QQQ is Oversold After the Rotation
  • Treasuries Remain Bid; Where is the Growth?
  • Commodities Continue to Grind Higher…
  • …As the Dollar Accelerates to the Downside
  • Futures Point to a Lower Open Today

Key Chart: Invesco QQQ Trust (QQQ)

The Invesco QQQ Trust (QQQ) has a Very Bullish Chaikin Power Gauge ETF Rating and continues to lead the SPY. The fund is now oversold based on our indicator while Chaikin Money Flow remains bullish. QQQ is above the rising long-term trend line with support in the $240 – $250 range. 

Stock of the Day: Meridian Bioscience (VIVO)

Meridian Bioscience (VIVO) has a Bullish Chaikin Power Gauge Rating and has been leading the SPY since April. The stock is oversold based on our indicator and Chaikin Money Flow is bullish. VIVO is above the rising long-term trend line and triggered an Oversold Buy Signal today. The 21-day ATR is currently $1.20.

The Chaikin Power Gauge Rating for VIVO is Bullish due to very positive expert activity and strong price/volume activity. Expert activity for VIVO is very positive which is evidenced by analysts revising earnings estimates upward. Price/volume activity for VIVO is strong, as indicated by price strength versus the market.

Pre-Market Movers

Advancers: MRNA (9%), FR (7%), SMAR (6%), IEX (6%), TPR (5%)

Decliners: HAS (12%), SC (7%), VST (3%), CLX (2%), FSLR (2%)

Monday’s Macro Market Trends

Equities

The SPDR S&P 500 ETF has a Neutral Chaikin Power Gauge ETF Rating (down from bullish last week) and remains in an overbought position. The fund is above the rising long-term trend line which is in the support zone that we have been highlighting between $300 – $310. Chaikin Money Flow remains bullish. 

Last week, SPY tried to break through the top of the recent range but has been turned back. The trend from the March 23rd lows remains in place but there is potential for more choppy treading / weakness in the near-term. 

Small Caps

The iShares Russell 2000 ETF (IWM) has a Neutral Chaikin Power Gauge ETF Rating and continues to underperform the SPY. The OB / OS Indicator is in an overbought condition and Chaikin Money Flow is bullish. The fund is above the long-term trend line and the Power Bar Ratio is bullish. 

Support is in the $135 – $140 range. Resistance is near the $150 level.      

Fixed Income 

The iShare 7 – 10 Year Treasury Bond ETF (IEF) has a Bullish Chaikin Power Gauge ETF Rating and is lagging the SPY. The OB / OS Indicator is now in an overbought condition after failing to reach an oversold level and Chaikin Money Flow remains bullish. IEF is trading at the rising long-term trend line. 

Support is in the $118 – $120 range while resistance is in the zone between $123 and $124. We continue to feel that investors who are running diversified portfolios could benefit from having exposure to treasuries which act as a diversifier in times of equity volatility.   

Commodities

The Invesco DB Commodity Index Tracking Fund (DBC) is not rated. The fund has been lagging the SPY for more than a year but the intensity of underperformance has been waning since May. DBC is overbought and Chaikin Money Flow remains bullish. Support is near $11.50 while resistance is near $13.50.   

Over the past few weeks, we have been open to the idea that inflation is picking up as record amounts of fiscal and monetary stimulus erode the purchasing power of the dollar. This view is largely playing out. 

Crude Oil

Crude Oil is trading between the rising 50-day moving average and the declining 200-day moving average. We note that the RSI has yet to become overbought on the rally from the lows that saw crude move into negative territory and the indicator is now beginning to move lower.

Gold

Gold is trading at five-year highs and is above the rising 50 and 200-day moving averages. The RSI is now overbought, confirming the strength that we have been highlighting and our bullish view on the yellow metal.

As noted above, with the purchasing power of the dollar being eroded, inflation is a growing concern. As gold has moved to new highs, silver and other precious metals have been strong as well. Additionally, in our notes over the past few weeks we have also called out the strength in gold and silver miners. 

The Dollar

The Invesco DB US Dollar Bullish ETF (UUP) remains below support at the $26 level, the break of which has accelerated the next leg higher in the inflation theme that we have been highlighting for the past few weeks.    

Take Away: Our views are unchanged from what they have been over the past few weeks. While the SPY is in a consolidation, it remains above the key $300 level that keeps the bullish trend from the March lows in place. There is potential for trading to become choppy in the near-term given the continued overbought conditions of SPY and IWM. We remain focused on risk management and look to become more aggressive near key support levels. 

Market Commentary / Looking Ahead

US equities were lower on Friday as Technology, Health Care and Industrials lagged. Consumer Discretionary was the only sector to close in the green. Treasuries were mixed with the curve flattening. The dollar was down on the major crosses. Gold finished up 0.5%. WTI Crude settled up 0.4%.

  • Outperformers: Consumer Disc. +0.33%, Communication Svcs. (0.06%), Consumer Spls. (0.14%), Materials (0.32%), REITs (0.36%), Financials (0.37%), Energy (0.59%)
  • Underperformers: Tech (1.19%), Healthcare (1.11%), Industrials (0.80%), Utilities (0.63%)

S&P futures are up 0.5% after the major US indexes all finished lower last week with growth and momentum factors extending their recent underperformance. Asian equities were mixed overnight. European markets are mostly weaker to start the week. Treasuries are stronger with the curve flattening. The dollar is weaker on the major crosses. Gold is up another 2%. WTI Crude is down 0.3%.

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Disclaimer

Disclaimer: Chaikin Analytics LLC is not registered as a securities broker-dealer or advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Chaikin Analytics does not recommend the purchase of any stock or advise on the suitability of any trade. The information presented is generic in nature and is not to be construed as an endorsement, recommendation, advice or any offer or solicitation to buy or sell securities of any kind, but solely as information requiring further research as to suitability, accuracy and appropriateness. Users bear sole responsibility for their own stock research and decisions. Read the entire at www.chaikinanalytics.com/disclaimer

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