Last Week In Review (06-28-2020)

From the desk of Steve Strazza @Sstrazza

For the week ended Friday, June 26, 2020:

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

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness."

It sounds like Charles Dickens could have been writing about today's market in his famous passage from A Tale of Two Cities.

Many areas of Growth and Technology are trading at or near record highs, and it's sure felt like the "best of times" for anyone who's been overweight these stocks in recent years.

On the other hand, cyclicals and Value were already hurting coming into the year and then endured serious structural damage during the Q1 crash. If you've been invested in these areas, particularly those groups directly impacted by Covid-19, it might just seem like the "worst of times."

Navigating the volatility hasn't been easy as even emperors of Industry like Warren Buffet have made some major blunders this year. Other renowned fund managers who are supposed to espouse wisdom turned bearish and missed the recent rally. Many also made comments that haven't aged well, to say the least.

Meanwhile, on the other side of the investing universe, Robinhood traders have made things look easy while Davey Day Trader has become the latest internet sensation. These have been strange times indeed.

In this week's post, we'll highlight the continued bifurcation between the strong and weak as the most resilient areas during the recent volatility were the secular leaders once again. This is a theme we've harped on all year, and it's showing no signs of changing.

Click table to enlarge view.

Looking at the major US Index ETFs, and the Nasdaq 100 $QQQ posted another week of notable outperformance relative to its peers. The QQQ's are now up nearly 30% over the trailing year vs a lousy 2% gain for the S&P 500 $SPY, and a negative return for every other index.

The Nasdaq's February high of 237 is as important as any level we're watching right now. If we remain above that, it's hard to be bearish on stocks.

Click chart to enlarge view.

On another note, check out the strength from Micro-Caps off the March lows, illustrated by $IWC performing just about in line with the Nasdaq over the trailing 3-months.

Price is currently testing channel/wedge support which also coincides with the 61.8% retracement of its Q1 drawdown, March 9th breakaway gap, and several key 2019 lows. For these reasons, 84 is a major level of interest for Microcaps and whether buyers can defend it or not will provide us important information.

Here's our Sector SPDR ETF table.

While it's not abnormal for Tech to outperform, particularly when the Nasdaq does, $XLK led its peers by an unusually wide margin this week as the remaining sectors were lower by an average -4.5%. The usual suspects lagged again as Industrials $XLI, Energy $XLE, and Financials $XLF posted big losses and are still by far the worst performers over the trailing year.

We've written about how we don't want to be buying these areas time and again, but that doesn't mean we don't want to watch them. In fact, it's just the opposite. Let's take a look.

If stocks are going to put in a top and roll over from here, we'd expect these underperformers to lead to the downside and violate the levels outlined above. As such, we want to use these sectors to identify early signs of potential weakness for the broader market.