Date: June 21, 2021

Time for The Bulls to Make a Stand – Cramer Warning More Selling

The stock market has now closed lower for four straight days and three consecutive post-Fed meeting. The pullback has been healthy and relatively modest, so far. On Friday we saw one of the big, quarterly options and futures expirations which usually see prices rally into the day and selloff post. That didn’t happen. Many people are focused on the negative seasonal trend post-June expiration.  However, most people are lazy and do not dig beneath the surface. I am not saying they are wrong, just that it is not cut and dried.

When someone like Jim Cramer is beating his chest not to invest because technical analyst Larry Williams says the next 5 days are the weakest of the year, I start to look for any and every sign that is encouraging to the bulls. Comments and forecasts like this are rarely correct. To me it looks like one more flush lower will offer a good buying opportunity for the bulls. Think of all those people who have been waiting and waiting and waiting to buy since last fall. I do not sense they bought already or are close. Rather, I think they are now hoping for at least 10% on the downside.

Last week was a tough one for my thesis. While I am glad my work rotated back to growth at the index level to limit losses and totally avoid the gold collapse, the sector damage was ugly. Materials, energy, banks and industrials all took it on the chin as did commodities with the dollar surging. That trend is likely to continue to begin the week, but I would be a buyer on one more bout of weakness early in the week for at least a trade. There are a number of indicators and short trends which suggest higher prices sooner than later.

And as I always consider, if I am wrong about my thesis, there should be a few intervening rallies to lighten up or continue to rotate. Big money does not pivot on a dime and certainly not in large amounts post-Fed. That money takes weeks and months as we saw post-Halloween.

From this point until the end of June, the small caps usually outperform the large caps although it doesn’t look that way just yet. I will be stalking that turn all week. Gold stocks have been pummeled and that’s another area where opportunity should knock this week. Bond yields fell hard to end the week and it will be interesting and telling to see what happens now. The high yield bond market, one of my favorite canaries, hung in very well and is not screaming about stress in the credit markets.

And remember, we have month and quarter-end coming up next week along with the huge annual rebalance of the Russell indices. There must be at least $12 trillion indexed to the Russell products.

Let’s look for one more flush lower either on Monday morning or before Tuesday ends to give the bulls a spot to make a stand. The last few minutes on Friday saw a strong swoosh in the S&P 500 to new lows for the day that was not confirmed by the NASDAQ 100. That behavior was a little “curious” to me.


Paul Schatz, President, Heritage Capital