Momentum Monday – Large Caps Are Leading

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One can make the argument that we saw a flight to quality last week. Many of the high-momentum flyers started to break down while capital rotated into large caps. This is not just an inflation story. Capital didn’t go only to tech because of falling interest rates last week. We also saw stocks like Nike and Starbucks pushing higher. 

Mega-cap tech stocks have been running in the 2-4 weeks leading to their earnings reports in the past couple of quarters. It seems we are seeing it again. AAPL, GOOGL, FB, MSFT have been pushing higher. AMZN, NFLX, CRM, and TSLA are also setting up.

I don’t know if the current run into tech will continue. The market might as well decide inflation is a threat again and hit those stocks. But what will happen if this scenario plays out? Money will just rotate into financials and basic materials, which will prop up the S&P 500. Maybe, this is why SPY was up or flat every single day for the past two weeks and every 4-5% dip has relentlessly been bought this year. 

In the meantime, the small-cap ETF – Russell 2000, continues to build a humongous base. It has also been making higher lows since May. If it ever breaks above 234-235, it is likely to have a significant run.

Last week was big for gene editing stocks. NTLA doubled in 5 days. EDIT, BEAM, CRSP, FATE also had big breakouts and are now setting up for potential continuation.

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