The Past 3 Days May Have Changed Everything

This Can Not Be Ignored

The major U.S. equity averages finished up again on the week, but it’s the past three days that were really interesting. They marked a major reversal of the risk-on trends that have been in place pretty much non-stop since the beginning of May. All of the previous laggards - utilities, consumer staples, value, low volatility - outperformed the market sharply. Mega-caps and tech underperformed, while lumber prices fell by 6%.

Is this a sign of a more significant reversal of this summer’s risk-on trade? It’s three trading days, so it’s not exactly a huge sample size, but it’s also remarkably similar to what the markets did at the beginning of the year when I said conditions favored a melt-up in January. That was when lumber prices, small-caps, tech and high beta stocks made very sharp & quick moves higher, which ultimately ushered in a huge bull market rally in the first half. This past week, a similar pattern emerged, only in reverse.