Need to Know
The S&P 500 is nearly 99% above its March 2020 low. These 3 big-tech charts will tell you if things are about to unravel
Critical information for the U.S. trading day
After back-to-back-to-back record closes for the Dow DJIA, +0.04% and S&P 500 SPX, +0.16%, investors might be asking what’s next?
Anyone suffering from triskaidekaphobia — the fear of the number 13 — or friggatriskaidekaphobia, fear of actual Friday 13th, might want to start their weekends early as we’re cruising through the first one since November 2020.
But in fact, the last two such Fridays — in March and November 2020 — produced 9.3% and 1.4% respective gains for the S&P 500, notes LPL Financial’s chief market strategist Ryan Detrick in a blog post. “Black cats and broken mirrors might be scary on this day, but stocks shouldn’t be,” he said.
That said, August and September are historically dicey months for investors, Detrick adds.
It’s also shaping up to be a bull market for the ages, possibly the fastest to double off the lows since the 1940s, Detrick said. As of Thursday’s close, the S&P 500 was 98.79% above its 2020 bear market low of 2,237.40 hit Monday, March 23, 2020, according to Dow Jones Market Data.
All that bullishness does worry some. That brings us to our call of the day from John Kosar, chief market strategist at Asbury Research, who said whether or not the S&P 500 gets an “overdue correction” depends on large tech.
“The traditional market leaders during a normal, healthy bull market — semiconductors, technology and small cap — have for the most part been inconsistent leaders in 2021. And the only two that have actually led at times — semis and tech — have been passing that mantel back and forth like they don’t want it,” Kosar told clients in a post.
He lays things out in a series of charts looking at the performance of the Nasdaq-100 NDX, +0.32%. The first shows how the index has been tested — and thus far rebounding — from its 21-day moving average (DMA), for the fourth time since rising above it on May 24.
His next chart (lower panel) shows daily total net assests invested in the Invesco QQQ exchange traded fund QQQ, +0.35%, which tracks the Nasdaq-100, testing their 21-DMA from above. As the chart shows, those assets have been above that DMA since May 24, which points to monthly expansion, a trend that has driven a 12% rise in techs.
In his last chart, the strategist shows that since Aug. 10, the QQQ has moved to a trend of monthly relative underperformance versus the SPDR S&P 500 Trust ETF SPY, +0.18%. The red highlights on the left point to a similar trend for QQQ versus the S&P 500 ETF between April 26 and May 24, which coincided with an 8% fall in QQQ and 8% decline in the Nasdaq-100.
In summary, his first two charts are bullish, showing an advance for big tech is intact, but Chart 3 warns of downside to come.
“A decline below NDX 14,974, and/or a new trend of monthly contraction in the total net assets invested in QQQ, would confirm this and suggest that a Tactical correction has begun in this market-leading index,” said Kosar.
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