I am gonna keep this real simple. In the month’s leading up to Markets in Turmoil 2014™ there was much talk of the divergence between large cap and small cap stocks, as the Russell 2000 topped out in early July and never made another new high with the S&P500, whose last one was on Sept 19th. Well, your guess is as good as mine about which grouping of stock outperforms from here on out but I will tell you that looking at the bounces in the Large Caps (SPY), Large Cap Tech (QQQ) and the Russell 2000 (IWM) they look fairly anemic and frankly I can’t tell you which one I like less.
Here is the thing, we are either going to test the prior breakdown levels and bust through signalling the all clear, possibly through year end, or we are going to test those levels and fail, possibly yielding a deeper correction than many would like at this stage of the calendar year.
Here are the levels that I am watching:
SPY – basically right here at $190 – which also corresponds with the etf’s 200 day moving average (in yellow) that the index had not been below (prior to this past week) since November 2012:
QQQ – just a tad higher than current levels – right about $95, the break-down level from Oct 20th that yielded further loses of 5%:
IWM – again just a bit above current levels at $110 – A failure at those levels would likely yield much lower lows in a sloppy tape as the Russell lead on the downside over the last couple months and would likely do so again:
I for one am inclined to take a shot on the QQQ as we have seen no shortage of tech disappointments so far, including GOOGL, EBAY & ORCL in the last month. I suspect to see further Semiconductor disappoints, but AAPL tonight will obviously be key as it is almost 14% of the index. I would also mention that despite INTC’s results and guidance initially being viewed as solid, the stock has not gained back much ground since the report.
Positioning: I am long short dated put spreads in INTC (here), long short dated puts in MSFT (here) and considering a small short position in QQQ here leaving room to add above $95 (if we get there.)