The NASDAQ, long the leader, is showing signs of not just a corrective weakness but the end of its run. The S&P 500 also has some sizeable exposure, though notably less exposure, to technology as the NASDAQ. This will create some weakness in the SPX as a result as market leaders like Apple (AAPL), Google (GOOG), Facebook (FB), Tesla (TSLA), and Netflix (NFLX) look to shrink back from their leadership position. Any declines in these names will eventually bleed into selling in other names as liquidations become necessary from overleveraging into tech concentrated portfolios.
At the late stage in the life of a bull market, technology is the leader which bleeds into Utility leadership. It's not surprising to see Utilities and Energy beginning to pop both in relief and also in sector rotation. It's time for caution and not for boldness in choosing direction and magnitude. This is the realm where bears and bulls put up huge fights oftentimes declaring premature victory over the other. If you have some stones of iron, you can sell some Iron Butterflies against the SPX at the current levels. You almost certainly will be tested in this position this week but it may be a profitable play. I'm not sure that my risk tolerance and risk appetite would permit this play in this market environment, however.
I will be selling into strength whether short or just liquidating positions. Cash is king as risk premiums must expand to deal with the increased volatility entering the market after Option Expiration on Friday.
- NASDAQ (QQQ): Weak
- S&P 500 (SPY): Neutral
- Russell 2000 (IWM): Slightly Weak
- Europe (EFA): Slightly Weak
- Japan (EWJ): Weak
- Emerging Markets (EEM): Very Weak
- Long-Dated US Treasuries (TLT): Very Weak
- Mid-Term US Treasuries (IEF): Weak
- Gold (GLD): Very Weak
- Silver (SLV): Very Weak
- Oil: Very Strong
- US Dollar (UUP): Strong