1. QQQ vs. IWM disconnect opening up
2. Iran Shock Hits Germany. DAX Now Rich
3. EU Financials: Credit Flashing Amber
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QQQ vs. IWM disconnect opening up
QQQ & IWM are +5% YTD and +12% YTD. The conundrum is that we have seen small cap outperformance despite financial condition indices not returning back to their pre Iran Shock levels.
On Qi’s model, QQQ relative to IWM sits 1 sigma below model fair value. Inflation expectations are a top driver of this disconnect. Inflation expectations remain close to 6mth highs – despite the ceasefire extension, the extent of oil damage continues to linger.
With market breadth remaining poor, chasing secular winner sover beta has appeal. Below, we show the FVG of this pair vs. spot price action– the strength of the relationship indicates that macro is onside for QQQ relative to IWM, just as we enter into the heart of tech earnings season.
Continue reading our analysis by downloading the PDF above
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