Price action
QQQ pulled back to retest the 449.5 breakout level on Monday, then didn’t look back. Last week we asked whether QQQ might be becoming more sensitive to activity data after what seemed to be a dramatic reaction to a weak Chicago PMI on Fri 31 May. This week QQQ wasn’t as responsive to data releases. It was far more responsive to NVDA, which climbed +10%. Next week is a big one with CPI and the Fed on Wed 12 Jun.
On the higher timeframe the primary trend remains bullish: QQQ continues to make higher highs and higher lows, holding above its short and long term moving averages, which are rising. A new trend channel may be emerging? We shall see.
The Fed
The Fed were in blackout this week ahead of next week’s FOMC meeting. However, there were noteworthy developments elsewhere in central bank land. Namely, a global cutting cycle may have started, initiated by the ECB and the Bank of Canada. The point here is the comovement among the central banks of the West, which is a function of economic interconnectedness. Falling interest rates, to the extent not prompted by recessionary impulse, are constructive for stocks.
What did we learn about markets?
While QQQ exhibited less sensitivity to data releases this week, that was not the case for the US10yr yield. On Wednesday the ISM-NM came in with a beat, then NFPs beat on Friday. Together, they arrested the decline in yields which began on 29 May. Conclusion? The data stopped deteriorating, which is good news for growth, which is constructive for stocks. But, look out in case the data gets too hot again, which would turn the Fed hawkish and push yields higher. For now, things look OK.
Breadth
The negative breadth divergence that appeared a few weeks ago is not going away.
McClellan Summation Index: still falling
Nasdaq New 52wk Highs: not confirming new index highs
Nasdaq100 advance-decline line: not confirming new index highs
Sentiment
The surveys cooled somewhat.
NAAIM: down from 92.2 to 68.7
AAII: Bears up +5pts to 32%
Summary
QQQ followed through from a bullish reversal on Fri 31 May and printed new all time highs. The longer term primary trend remains bullish.
Global central banks may have initiated a cutting cycle, which is constructive for stocks.
Breadth is not supporting new highs in the indices, which is a concern.
Sentiment has cooled off from elevated bullish levels.
Key events next week: Mon - NVDA stock split; Wed - CPI, Fed day; Thu - PPI
PS, an explainer for the weekly slide can be found here:
https://chartnotes.substack.com/about