Momentum vs Value Battle Rages On
SP500 Continues to Climb
Nomura’s Charlie McElligott who is always a must read, highlighted today exactly what Magnelibra Econemotions has also been talking about lately, that is the reversal of the momentum vs value trade.
We highlight it with spreads in the futures like Russell2k vs Nasdaq or the SP500 vs Nasdaq. Let’s be honest we all know what everyone is invested in, and we mean everyone, the FAANGMs (Facebook, Apple, Amazon, Netflix, Google and Microsoft). Charlie touched on three factors leading to this recent change in value starting to outperform:
Fiscal stimulus out of the EU
Yield curve control, i.e. Fed induced steepener’s (short end outperforming the longer end)
The rush to open the global economies
However, we would like to note that forward earnings and the prospect of uncertainly will continue to weigh in on value stocks and despite the momentum clear out-performance since the start of the year, we aren’t suggesting this is a top. Rather we would suggest a few players are merely placing bets here and whether they work out, only time will tell. Here is the chart from Zhedge:
As we discussed Magnelibra tracks this via a 2x Russell2k future vs Nasdaq which broke the 50-day moving average (dMA) yesterday for the first time in 7 months:
Adding to all of this and what seems to be putting pressure on the tech heavy Nasdaq is the fact that President Trump is going to issue an Executive Order today examining the legality protections that social media companies seem to have in regards to their ability to limit speech. It seems the White House is going to empower the FCC to write guidelines for the social media platforms in regards to content censorship and or content removal. We have spoken recently about perhaps looking into anti-trust provisions as well, but that doesn’t seem to be appropriate just yet.
As far as equity technical levels, overall, the theme continues to be bullish and the CTA systematics seem to be coming in here to support things. When we view the SP500 June future a clear target in our minds is 3115 as it is the .768 retracement and is significant in terms of the outright and absolute reversal of all the Covid pandemic led sell off.
One thing we know in all our years trading is that complacency is rampant and those relying fully on QE here and expecting a quick turnaround of the over 30 million newly unemployed, we think that is a highly optimistic viewpoint one can take. This doesn’t mean equities can’t rally and blow through this 3115, rather we are just pointing out the Fib. Extension that has been notorious for reversals that’s all. Remember we will continue to believe the Federal Reserve will QE to ∞, so yes equities can continue their ascent on this alone! Anyway, here is the SP500 June Futures chart:
OK that’s it for now, this is the kind of content our Magnelibra Econemotions subscribers should be accustomed to and it’s what we look to bring you hopefully each and every day.
For more information on Magnelibra Capital Advisors and the managed futures and options program we run please visit www.magnelibra.com
-Magnelibra Econemotions
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