Changing Of The Guard To Value?
What looked like the start of another leg up of a parabolic run for Nasdaq 100 (QQQ) disappointingly turned into a rout, with some key stocks dropping up to 10% from the gap up Friday morning. Some are calling it a “flash crash,” with the QQQ down 2.4 % on Friday. For example, AMZN opened at 1012, retreated down to 927, then closed at 977.40.
This type of volatility is usually reserved for earnings announcements, takeovers, or something else major. In this case, a few big players seemed to have gotten a memo that said, “Your FANGS are too long: take some money off the table, and move it elsewhere.” Not the case with crypto currencies, as they hit new highs yet again, dwarfing even the meteoric move in Nasdaq.
There was some good news, however, and the panic in Nasdaq did not become a pandemic by spreading to any other indexes. In fact, the Dow (DIA) and the Russell 2000 (IWM) closed at record-setting all-time highs. One might call it a changing of the guard: as the chart above demonstrates, the massive outperformance of growth stocks just might have hit a brick wall, with the baton being passed to value.
These rare, stunning reversals, whether in current events or trading, are commonplace these days, and the British election certainly was yet another: it now calls Brexit into question. On a different geopolitical front, a wacky development indicates another changing of the guard.
Up until very recently, it would be hard to conceive that North Korea could ever take the moral high ground on any topic, relative to the United States. However, since its endorsement of the Paris Climate Accord, it could and did chastise the Trump Administration and the entire US in a surprisingly cogent way. It stated, “This is the height of egotism and moral vacuum seeking only their own well-being at the cost of the entire planet’. How this plays out in the financial markets has yet to be seen.
Meanwhile, Market internals are mixed, and Sentiment indicators (such as the VIX) are still bullish, but any move above Friday’s highs in volatility looks ominous.
Check out this week’s video for more on the VIX and clarification on the mixed performance of the key US Stock Indexes.
Video length: 00:08:58
Like to learn more about relative strength methodology? Our most recent free training material can be found here.