MAG 7 Divergence Tilting Toward The Bulls?

1) CRAMER – Jim Cramer said: “Until the straits are open, stay away.” With all due respect to Mr. Cramer, that’s not how markets work. When the “buy” signal finally appears to TV pundits, oil will already be below $80 (after being ~$110), VIX will already be below 22 (after being ~30), and markets will already be up 2–3%. That’s how markets work. Yesterday’s market action brought VIX down to 22.19. This morning it is at 25.78, still in a neutral position below the top of trend (26.29). Volatility is still volatile, and so it will likely just be choppy.

2) RATES – Even though core inflation on both a month-over-month and year-over-year basis was in line this morning, it looks like bonds are still “seeing” inflation as the 2YR Treasury is back up toward 3.62% with sights on 3.64% resistance. Core inflation actually decelerated to 0.2% from last month’s 0.3%. Nevertheless, markets are expecting inflation to accelerate on the recent oil madness. WTI crude is up about 1.3% this morning to $87.70…but a long way from the recent high of $119.54, which I don’t think we’ll see again in this cycle.

3) MAG7 – Everyone seems to think it’s all over for the “Magnificent Seven,” that the bull market is finished and a crash is coming. Narrative noise. Market crashes are actually pretty rare, and if you look back at this decade alone, we’ve already had plenty of drama. From a full-blown bear market in 2021-22, to one of the fastest market crashes in history in 2020 to multiple double-digit corrections along the way. But what if what we've seen in the MAG7 is just normal bull market behavior? Even though the headlines focus on the damage in a handful of mega-cap names, the broader market has been holding fairly well. And if you look a little closer, you might even start to see some early evidence that the recent weakness in the so-called Magnificent Seven could be setting up the conditions needed for the next move higher. The S&P 500 is down about 1% since late October, and the Dow Jones Industrial Average is basically flat over that same period. Below is a look at the relative performance of the Magnificent 7 compared with the broader S&P 500. Price made lower lows into the end of February. But momentum (bottom of the chart) did not. Instead, momentum held a higher low. That’s a classic bullish divergence. These types of divergences often show up near important turning points. They tell us that while price may still be drifting lower, the underlying momentum behind the move is already starting to improve. Now that alone isn’t a buy signal, but when shorter-term bullish divergences start to appear within an existing long-term uptrend, the odds begin to tilt back toward the bulls.