Last Week In Review (06-12-2020)

From the desk of Steve Strazza @Sstrazza

For the week ended Friday, June 12, 2020:

Every week we publish performance tables for a variety of different asset classes and categories along with commentary on each.

Last week was a big one for the bears as most risk-assets sold off aggressively to end the week after a strong start.

Many major Indexes in both International and Domestic Equity Markets printed bearish island reversal patterns, most of which occurred at logical levels of overhead supply. Read our post about it here.

We also just wrote about how the market's secular leaders are holding up best since market internals peaked about two weeks ago. We're going to use our US Index and Sector tables below to highlight the noteworthy relative strength from these areas amid the recent market weakness.

Let's take it from the top and begin with our US Index ETF table.

Click table to enlarge view.

A discussion about markets in the strongest structural shape and showing resilience has to start with the Nasdaq. Low and behold, Nasdaq 100 ETF $QQQ was only down -1.6% last week vs an average loss of nearly -6.5% for the other major US Indexes.

The Nasdaq has been consistently outperforming its peer indexes for over a decade now. It is the definition of secular leadership. For this reason, just like it was when price held 170 and helped signal the market bottom in March, QQQ is once again the most important chart in the world in my opinion.

The breakout above February's high needs to hold if this market is to have further fuel in the near-term. Not only that, but the other indexes are going to have to continue to participate and recover from their recent selloffs.

The longer the other major averages remain trapped beneath their old highs, the greater the likelihood becomes that the Nasdaq eventually fails to hold its own fresh all-time highs. This lack of confirmation will remain a concern until we see that change. 237 is the line in the sand for now.

In last week's post, we discussed the healthy rotation and notable outperformance from the more cyclical sectors as the leaders took a breather over the past several weeks.

Now that we're seeing some volatility return to the market, these areas are once again being hit the hardest as the long-term outperformers re-emerge as leadership.

Here's another way to visualize this rotation and ensuing unwind in recent weeks. This is a daily Relative Rotation Graph of all the SPDR Sectors from our table benchmarked against the S&P 500.

You can clearly see all the cyclical sectors such as Industrials $XLI, Financials $XLF, and Materials $XLB heading lower and out of the leading quadrant where they had been for the past month or so. You can also see the true leaders such as Technology $XLK, Communications $XLC, and Discretionary $XLY trying to hook up and to the right and back towards leading after rotating into the weakening and lagging quadrants.

Another thing to note based on the RRG chart is that Healthcare $XLV looks by far the worst while Energy $XLE actually looks the best right now on a near-term relative basis.

Our Industry ETF table also illustrates our point about the areas that suffered the least structural damage during the Q1 crash once again showing leadership during the recent market correction.