- Risk trends were put through the gauntlet this past week, but ultimately we enter the new trading week with a ‘risk on’ boost on a record S&P 500 Friday close
- Top fundamental theme over the coming week includes expectation for a US infrastructure stimulus update and a holiday NFPs release
- While the Dollar eased back on Friday, USDJPY carried its drive through Friday to break a major wedge to confront the next major milestone
A Rebound in Broad Risk and Record High for the Lead US Stock Index
Risk trends seemed to maintain a broad correlation this past week, though that breadth wouldn’t necessarily translate into conviction. Intent is important to evaluate in the markets because most traders depend on follow through in their trading rather than the binary condition of a technical break. Establishing follow through over this coming week depends on the same general systemic circumstance we have lacked over the previous week: a clear and definitive fundamental lead to draw the bulk of the speculative market to a particular cause. Without that common drive, it can be very difficult to solidify conviction. And yet, that is exactly what is critical at this point when benchmarks like the S&P 500 close out this past week with a technical record high. On a daily basis, the close from the most heavily traded index – through derivatives – edged out the March 17th close by a mere 0.4 points. While impressive in print, it isn’t exactly a roaring technical endorsement that can override fundamental constraints to conviction.
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Chart of S&P 500 with 100-Day Moving Average and 1-Day Rate of Change (Daily)
Chart Created on Tradingview Platform
Look more critical at the shape of the risk trends we closed this past week on, there continues to be a notable slump in retail conviction. Though it has been tumultuous, 2021 has thus far proven the year of novice traders. The extreme end of the curve has shown favor for the likes of GameStop (one of the so-called ‘meme stocks’) while the cryptocurrency craze continues to draw a consistent appeal among those new to the financial markets. Perhaps raising the experience level but not pulling back from the extreme edge of risk taking, we have also seen an indulgence in high-finance. Trading app Robinhood has announced its interest in creating a platform that connects retail traders to IPOs (conveniently before its own offering) while SPACs now count WeWork, the company that failed to follow the traditional route over a year ago, among its rushed-to-market ilk. And, if we want to look only among the highest of risk measures, there is a notable preference building for ‘blue chip’ stocks in an index like the Dow relative to the tech-heavy Nasdaq 100 which has led the US equity markets for years.
Chart of Nasdaq 100 to Dow Jones Ratio with 100-Day Moving Average (Daily)
Chart Created on Tradingview Platform
The Top Fundamental Themes and USDJPY’s Barometric Pressure
Looking ahead to next week, there is a clear sense of what critical themes will take up the market’s reigns. The rise and fall of retail interest is a theme to watch, but it is not a reliable charge. In more traditional channels, we have relative growth coming off this past week’s PMIs but the aggregate view of recovery is not exactly showing through the clouds of uncertainty. Yields has been a driver that has lost notable traction as well. Inflation fears have eased back in sheer headlines, but the benchmark government bond yields that drove much of that worry haven’t really relented. The US March NFPs release due Friday could take up this cause, but holiday trading conditions are likely to drain its potential. The top of my list for critical market moving events will be the infrastructure stimulus plan due from US President Biden…