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On Wednesday morning April 21, I first wrote about a potential breakdown in the QQQ. Yesterday morning, I revisited the subject after the QQQ broke below its February 12 closing high around $336 to close around $330 on Tuesday. This morning I want to briefly revisit the subject as it tried to bounce yesterday, reaching $333 at the open before selling off into the close to finish down $1.11 or 0.34% at $329.03.
There are two reasons I’m keeping such a close eye on the QQQ. One, it is the most important ETF in the market dominated by leading stocks like Apple (AAPL, 10.95% of the QQQ), Microsoft (MSFT, 9.50%), Amazon (AMZN, 8.32%), Google (GOOG/GOOGL, 6.93%), Tesla (TSLA, 4.24%), Facebook (FB, 3.78%), Nvidia (NVDA, 2.69%) and Paypal (2.31%). Two, its components make up a significant percentage of the S&P and NASDAQ. Failure here would almost surely mean failure in the major indexes as well.
Next, I want to talk about Cathie Wood’s popular Ark Innovation ETF (ARKK). This ETF was a terrific performer from the March 2020 COVID lows through mid February 2021, drawing huge inflows from retail investors along the way. However, ARKK has been under enormous pressure since as the highly speculative growth stocks Wood favors have lost their luster for the moment. It closed yesterday (Wednesday) at $111.55 – nearly 30% off its February 12 closing high of $156.58. And, as Greg Harmon points out in his tweet above, it is now sitting on its 200 DMA and testing its 38.2% retracement from the March 2020 COVID lows to the February 2021 highs for the third time. It’s make or break time for ARKK.
We could be at a generational turning point for finance. Politics, economics, international relations, demography and labor are all shifting to supporting inflation….
Investors are woefully unprepared for such a shift, perhaps because such historic turning points have proven remarkably hard to spot….
If we are at a turning point, the cost of being wrong is high. Investors who are buying 10-year Treasurys at 1.6% will lose horribly from higher inflation. Even hitting the Fed’s target of 2% over the period would mean a loss of spending power. If inflation picks up to the 1990s average of 3% it would be extremely painful, and if fears took hold that 3% could turn into the 1980s average above 5%, Treasurys would be massacred.
James Mackintosh, “Everything Screams Inflation: Investors are woefully unprepared for what may be a once-in-a-generation shift in the market”, WSJ, Thursday May 6 [SUBSCRIPTION REQUIRED]
I’ve been pounding the table hard on inflation lately. On Thursday morning April 22, I wrote about how Procter & Gamble and Kimberly Clark were raising prices on some products in their consumer staples portfolios. Just this Tuesday morning I wrote that “Inflation Is Set To Roar”. In the wake of Fed Chair Jerome Powell’s dismissal of inflation concerns last Wednesday, more and more people are talking about it. Lyn Alden came out later that day with a sarcastic tweet about the CPI as a measure of inflation. James Mackintosh has written a piece, “Everything Screams Inflation”, for this morning’s Wall Street Journal that is sure to get a lot of attention. While Mackintosh is cautious about calling for a “generational turning point”, I’m more adamant: It’s coming. On Tuesday, I talked about how to play it via the precious metals and their miners.
Lastly, I’d be remiss if I didn’t touch upon the insanity taking place in crypto land. With Bitcoin trading sideways over the last few weeks, many crypto investors have moved on to Ethereum and even Dogecoin. As you can see in the tweet from J4 above, Ethereum has gone parabolic versus Bitcoin! Even further down the food chain is Dogecoin which is now trading at 60 cents with a market cap of $90 billion according to Holger Zschaepitz. It’s to the point where rappers like Meek Mill and NFL players like Richard Sherman are in Dogecoin.
Elon Musk, who has been pumping Dogecoin on Twitter, is set to host Saturday Night Live this weekend. If he mentions Dogecoin, all hell could break loose. I’m considering taking a small position today just in case he does. I might add a little Ethereum as well. Charlie Munger is probably right when he said of crypto that the “whole damn development is disgusting and contrary to the interests of civilization”. But I have FOMO. Why should everyone else have all the fun? Party responsibly friends. This ain’t your average bubble.