• AMC apes roam Wall Street squeezing any bears they find.
  • Retail rally fizzes up stocks as the mood brightens on Wall Street thanks to the Fed.
  • The week ahead starts with a whisper but goes out with a nonfarm bang!

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Well, that was another interesting week, it is never dull around here is it. Let us see how long we can get through this article without mentioning AMC, doh! It is impossible not to mention the new meme stock king in any weekly recap and preview as AMC topped the charts on Thursday in volume terms. Yes, you read that right, AMC traded more volume than any other name on the entire New York Stock Exchange on Thursday. Not bad for a now $11 billion market cap name, up against tech titans and industry kingpins. Tesla continues to find buyers as the electric vehicle space recovers, even Lordstown Motors (RIDE) managed to advance despite terrible results and a cry for help we need more money. It worked for AMC which used the retail investor interest to raise plenty of cash to stave off bankruptcy so why not for poor old Lordstown.

Speaking of the auto space, Ford held an investor day on Wednesday that went down a treat and shares surged for the remainder of the week, hitting fresh new five-year highs in the process. Ford has electric firmly in focus as it plans to raise margins to 8% and move over 40% of sales to electric by 2030. Virgin Galactic remained in orbit as the meme stock rally lead any and all small caps higher. Curiously enough, GameStop (GME) was calm on the week by comparison.

Turning our focus to the fundamental background remains fraught with opinion bias but the fact remains the Fed has the markets back and you would be foolish to try and fight the enormous wall of money flowing into equities. Inflation fears have been totally calmed as a succession of Fed speakers took to the wires on a daily basis, spewing forth the doctrine of monetary easing must go on forever and any inflation will be transitory and will not cause a sell-off. The message is clear from the Fed we will be there to back you. Indeed the Fed did say back in 2012 that investors know they are there and the situation is repeating in 2021. In a report titled “Can the Fed Ever Raise Interest Rates?” Natix’s Joe Lavorgna wrote: “Given the interconnectedness of the Fed to both the financial markets and the broader economy, this may be a tall order.”. The chart below shows just how interconnected the Fed is to the broader financial market in particular the equity market. The Fed may as well just directly step into the equity market and buy ETF’s, akin to the Bank of Japan.

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The worry is that the Fed’s action has actually made the market too big to fail. The flip side to the argument is does Main Street really care? The Fed balance sheet has also risen in direct proportion to the level of inequality in the US as buying and supporting financial assets support the rich much more proportionally than any other class. The trickle-down effect is proven to be out of vogue now multiple times and perhaps President Biden is attempting to correct this imbalance as he too realizes he cannot fight the Fed and instead focuses on social programs and huge social spending plans.

Data from the Federal government shows just how much the burden of taxation has shifted away from corporates to individuals, so President Biden’s plan to raise corporate taxes should not come as a surprise.

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Irrespective of the moral or political arguments we have to trade what is in front of us. The wall of money flowing into equities will likely accelerate now that the major indices are backtracking new highs and retail meme stocks are making headlines. The latest flow data from Refinitiv Lipper Alpha shows money continuing to pour into equity Exchange Traded Funds (ETF’s). Out of the last 16 weeks, only 1 week has witnessed outflows from equity ETF’s as there is no alternative is backed by the Fed holding yields at zero. Equity ETF’s received a fresh $9 billion in funds this week to May 26. Growth and Value ETF’s attracted the largest inflows of over $4 billion, international equity ETF’s received over $3 billion while the Nasdaq (QQQ) reaped over $1.6 billion. Given the retreat in yields it comes as no surprise that financial sectors ETF’s (XLF) were the biggest loser of funds with $0.6 billion being withdrawn.

The major indices are poised for new record highs as the path is cleared for take-off. The modest early May turbulence (sell in May and go away) has cleared and blue skies beckon. 4200 offered some resistance to the S&P but that has given way on Friday. Bulls remain in charge and only a break of our strong support zone beginning at 3983 would change the picture. The Williams %R is overbought but neither Relative Strength Index (RSI) or Commodity Channel Index (CCI) are confirming. The chart also shows the Williams oscillator tends to work better for oversold signals.

Support 4200 4183 9-day MA 41274075 trendline 4058 3983
Resistance 4238 moon mars infinity

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The situation is not too different for the Nasdaq but it sits lower with a bit more work to do for fresh highs. The first resistance is the old trendline from which the Nasdaq broke below on May 10. This resistance is at 13,966 currently. Once that is achieved it’s time for fresh record highs. A strong support zone, identified, helped reverse the early May fall and it should be noted FXStreet identified this support zone before the sell-off occurred.

Support 13,679 13,582 9-day MA 13,100 trendline and support zone 12,600 200-day MA
Resistance 13,966 trendline 14,073

Monday sees markets closed for Memorial Day. With the UK also off for its early summer bank holiday it is one of the quietest days in the year for financial markets. Earnings season is done but as ever a few of the small-cap names have the field to themselves and quite a few retail favourites will take to the pulpit. Quotient (QTNT), Canopy Growth (CGC), and Express (EXPR) being the notables.

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Source: Benzinga

As mentioned, Monday is Memorial day and also a UK holiday. The week builds nicely to the Nonfarm number on Friday. Time to see if last month’s number was a blip or is a worrying jobless recovery in evidence.

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