The QQQ Is Formally In A Correction (Technically Speaking For 3/8)
Summary
- Inflation is still a non-issue.
- However, supply chain disruptions may lead to temporary price increases.
- The QQQ is officially in a correction.
Let's take a look at the indexes' YTD performances:
As I've been noting for the last few weeks, the key to this table is the drop in treasury prices. The long end of the bond market is down over 10%, which means it is formally in a bear market. The belly of the curve is off modestly. Micro-caps are still the clear winner for the year; they're up a solid 20%. Small-caps gains are slightly more than half that; mid-caps have also made impressive gains. Large-caps are up marginally.
Let's start at the bottom by noting that staples and utilities - two defensive sectors - are down for the year. Tech and consumer discretionary are also off; this explains why the SPY and QQQ are barely higher on the year. Financials and industrials - which are two key sectors of the IWM and IWC, are up.
There's not much market-moving data this week. The key releases are CPI and PPI. Let's start with CPI:
Total CPI (left) is below 1.5% while core CPI (right) turned lower in the last report.
As for PPI, let's start with this graph:
Starting in the mid-1980s CPI (in red) was very consistent while PPI (in blue) was much more volatile. But the volatility in PPI didn't flow into CPI. That means that companies learned how to absorb price increases without passing them onto customers.
The current economic environment is going to test that development. The latest ISM manufacturing reports have contained anecdotal comments specifically mentioning price pressures. The Markit Economics release confirms this (emphasis added):
Also helping to buoy the headline PMI figure was a substantial lengthening of supplier delivery times amid significant supply chain disruption. Ordinarily a signal of improving operating conditions, longer lead times for inputs reportedly stemmed from supplier shortages and transportation delays due to coronavirus disease 2019 (COVID-19) restrictions. The extent to which wait times lengthened was the greatest since data collection began in May 2007.
As a result, goods producers registered a severe uptick in cost burdens. The rate of input price inflation accelerated to the sharpest since April 2011. Higher raw material prices, notably for steel, and increased transportation costs were widely linked to the rise
A story from today's Bloomberg adds additional color.
It will be interesting to see if manufacturers continue to absorb price increases or if they start to pass them onto consumers.
Let's take a look at today's performance tables:
This is quite the contrast. Micro-caps gained 1.52% - a strong day. Other, smaller-cap indexes were also higher. However, the QQQ fell nearly 3%, sending the index into a correction.
Technology and communication services took the brunt of the selling pressure, as traders continue to take profits in these sectors. Utilities were the top performer. The strong performance from financials and industrials explain why the IWM was higher.
Despite the QQQ's situation, I'm still not feeling worried about the markets. Let's start with the Nasdaq.
QQQ 30 days
Prices moved lower in mid-February, consolidated until the beginning of March, and then continued lower. Volume is picking up. This is a classic selling pattern.
SPY 30 minutes
But the selling pressure isn't influencing other markets. The SPY has traded in a 6% range in the last 30 days. But after last week's sell-off, prices rebounded strongly.
IWM 30 Minutes
The IWM has a similar pattern, although it does have a wider trading range.
As I noted over the weekend, the first thing we need is for the treasury market to find a bottom. But we're also seeing a sector rotation out of tech into industrials and financials. In other words, the market is clearly in flux for now.
This article was written by
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Comments (14)
Was in a correction. Classic bear market snap back rally, up over 4% or 1/3 the noted drop on the chart above. Classic? Apple has a really nice heads and shoulders topping pattern. Perma Bulls will be buying with both hands while smart money is lightning up on zero profit growth. Who wins, shall see?
“Technology and communication services took the brunt of the selling pressure, as traders continue to take profits in these sectors.”Zero profit mega growth stocks, arkk tells ya that. 109/159 = .3125 loss. Mega bear. Bear contagion?
