• Comments for July 12, 2017

    Although I could hardly detect anything in the markets two days ago, yesterday the picture started to evolve.

    First, we can see that there is a slight positive 20DMF divergence to SPY. This could indicate that large investors are back into chasing large caps and especially the NQ100.





    It is interesting to see that Mammoth stocks continued to show a positive MF, while small caps continued showing weakness. Without thinking too much, I would say that with earnings a few days away, large investors believe that long super large stocks/short the rest is the type of pair trade that could generate alpha. This anyway makes sense, as the QQQ and the FANG stocks have been under pressure lately and hence look relatively cheaper than a few weeks ago. Earnings for these companies will be in-line and hence, we should not expect negative surprises there, while the story could be very different for mid to small caps.





    We can also see a similar MF divergence between the largest 250 and the smallest 250 stocks of S&P500. This is also a clear pair-trades type of strategy.



    On the Index investment through the QQQ/SPY etfs, we can clearly see below that selling continues. This indicates that index investing is regarded as a crowded trade.





    This could also be the reason why we see money moving into US Treasuries: index investors are selling the largest ETFs to buy Treasuries that offer more attractive prices.





    Conclusions:

    I believe that US Treasuries are attractive here for "a reversal to the mean" type of trade.

    As for earnings, small caps carry more risk of negative surprises than thye super large caps.