Monday’s big move brought some short-term changes, but did not affect the long-term picture. Today’s report will update SPY, QQQ and IWM, as well as $SPX 20-day High-Low Percent. I will then quantify the influence of QQQ on SPY and review the big sectors. We finish with some insights from Tony Dwyer.
3 Major Index ETFs in 3 Different Places
Stocks surged on Monday with QQQ closing at its highest level since February 21st, SPY closing at its highest level since March 6th and IWM closing at its highest level since April 29th. And there you have the pecking order. QQQ is back to late February levels, SPY is back to early March levels and IWM has yet to exceed its April high. To record a 52-week high, QQQ needs another 5% advance, SPY requires another 15% and IWM needs a whopping 29%. QQQ is above its rising 200-day SMA, SPY is just below its falling 200-day and IWM is well below its falling 200-day SMA.
Long-term, we can classify QQQ as bullish, SPY as bearish and IWM as bearish. Short-term, all three are bullish with IWM and SPY breaking out of flag-like consolidations. Note that QQQ formed a higher low when the latter two formed lower lows in mid May.
Despite the short-term "breakouts" on Monday, nothing has changed longer term. Moreover, short-term mean-reversion setups seem to be performing better than short-term breakout trading. IWM fell back hard after the late April pennant breakout. Last week's support breaks (lower lows) in SPY and IWM did not amount to much. This means buy the dips, sell the bounces and buckle up for a bumpy ride.
20-day High-Low Percent Flips
The chart below shows SPY with 20-day High-Low Percent in the second window. SPY recorded a 20-day high and some 20.8% of stocks in the index also recorded 20-day highs. The High-Low Percent indicator dipped below -10% for a bearish signal last Wednesday and surged above +10% for a bullish signal on Monday (green shading). I do not know if this signal will last a few days (whipsaw), two weeks (see February) or several months (see December-January). It is what it is until proven otherwise.
How Much Does QQQ affect SPY?
SPY could be considered neutral because its QQQ components feature prominently. Consider the following:
- Almost 40% of SPY weightings come from stocks in QQQ
- 82 of the 100 stocks in QQQ are also in SPY
- These include the tech titans: MSFT, AAPL, AMZN and GOOGL
- These four account for 41.34% of QQQ and 19% of SPY
Top QQQ Stocks: MSFT, AAPL, AMZN, FB, GOOGL, INTC, NVDA, NFLX, PEP, CSCO, ADBE, PYPL, CMCSA, TSLA, AMGN, COST, CHTR, AVGO, TXN, GILD
Top SPY Stocks: MSFT, AAPL, AMZN, FB, GOOGL, JNJ, BRK.B, V, PG, UNH, JPM, HD, INTC, MA, VZ, PFE, NVDA, T, MRK, NFLX
QQQ Stocks in SPY (82): AAPL, ADBE, ADI, ADP, ADSK, ALGN, ALXN, AMAT, AMD, AMGN, AMZN, ANSS, ATVI, AVGO, BIIB, BKNG, CDNS, CDW, CERN, CHTR, CMCSA, COST, CPRT, CSCO, CSX, CTAS, CTSH, CTXS, DLTR, DXCM, EA, EBAY, EXC , EXPE , FAST , FB , FISV , FOXA , GILD , GOOGL , IDXX , ILMN , INCY , INTC , INTU , ISRG , KHC , KLAC , LRCX , MAR , MCHP , MDLZ , MNST , MSFT , MU , MXIM , NFLX , NTAP , NVDA , ORLY, PAYX , PCAR , PEP , PYPL , QCOM, REGN , ROST , SBUX , SNPS , SWKS , TMUS , TTWO , TXN , UAL , ULTA , VRSK , VRSN , VRTX, WBA , WDC , XEL , XLNX
QQQ Stocks not in SPY (18): ASML , BIDU , BMRN , CHKP , CSGP , JD , LBTYA, LULU , MELI , NTES , NXPI , SGEN , SIRI , SPLK , TCOM , TSLA , WDAY , ZM
XLK and XLV Lead the Pack
Also note that the Technology (26.63%), Communication Services (11.11%) and Healthcare (15.66%) sectors account for 53.4% of SPY. The next chart shows the top six sector SPDRs sorted by weight. SPY held up because the big three did not break their early May lows last week, and XLY also held its early May low. These four sectors are also above their 200-day SMAs. XLK and XLV are comfortably above, while XLC and XLY crossed on Monday. XLF and XLI, the smallest of the big six broke their early May lows and remain WELL below their 200-day SMAs. I will be watching the early May lows in the big three for clues on the short-term uptrends. The bulls get the benefit of the doubt as long as XLK, XLV and XLC hold these lows.
Tony Dwyer on the Frustration Trade
I sometimes peruse the Youtube channels for CNBC Television and Bloomberg for interviews with leading strategists or technical analyst. Tony Dwyer was on Fast Money yesterday and made the following points:
- Fed chairman Powell said there is no limit on what or how much it will buy and that they will worry about the consequences later (scary stuff).
- We need to see Treasuries decline to signal a move out of safe havens.
- Yield spreads are still well above pre-crisis levels, which means we are not back to normal.
- The bull market will return when rotation favors the economically sensitive trade instead of the covid-19 trade.
- Three positives on Monday were commodities rallying, Treasury bonds falling and steeper yield curve.
- Monday was just a spike and we want to see a trend.
- It is the Fed versus the economy and both incredibly strong (opposing) forces.
- We are entering the frustration phase of this advance as SPY has gone nowhere the last four to five weeks.
Dwyer echoes the sentiments here at TrendInvestorPro. Tech and Healthcare are leading the market, but we are still seeing serious underperformance in the S&P 500 EW ETF, the Industrials sector, Finance sector and the EW Consumer Discretionary ETF. Monday’s move was strong with 80% up days in Advance-Decline Percent for SPY, MDY and IJR. However, fewer than 40% of SPX stocks are above their 200-day EMAs and fewer than 20% of MID and SML stocks are above their 200-day EMAs. SPY first crossed 280 on April 15th (24 days ago) and dipped below 280 last week. Even though SPY is up around 4% since April 15th, this gain can be attributed to Monday’s surge. Overall, SPY is flat the last five weeks.
You can see the Youtube video here and visit Tony’s website here.