with large caps and tech stocks leading the way,
while XLV/Drugs were still under pressure
It is interesting to note below the dynamic between the $SPX price trend and the QQQ/SPY ratio.
We can note that most of the time, when $SPX pulled back, the QQQ was underperforming (Pink arrows).
During the March 2020 Covid pullback, tech stocks however outperformed as they were the solution to online working/entertaining/buying, home delivery, etc. These continued to outperform until the most recent $SPX pullback, which showed a much weaker QQQ sector (thin Blue arrow). Furthermore, we see that on the bounce, the fat Blue arrow was much shorter on the QQQ/SPY ratio. This indicates that QQQ overperformed, but only slightly so. I suspect that funds have been rebalancing their holdings out of QQQ during this bounce.
The 10Y yields continued weakening yesterday, which helped equities, but also the PM sector.
You will note below that the market is now slightly overvalued here. This does not mean that we are going to crash from here. It means that in order for new buyers to make money, they will need prices to increase. Prices will increase if rates continue to weaken and/or the EPS forecasts are pushed higher. We will soon know since we are entering earnings season.
Conclusions:
Still shorting the small caps is a good hedge against long positions.
Below are some trade ideas.
