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GOOG leads SPY

|Includes: Alphabet, Inc. Cl C (GOOG), SPY
Traders and investors are always looking for leading indicators to get an idea of where price is headed. There are several indicators available attempting to do just that. What about companies whose stock price leads stock indices?
Google (NASDAQ:GOOG) has been leading most market indices including the S&P 500 index or its ETF equivalent (NYSEARCA:SPY) for several months. Looking back to the lows after the major drop in 2008, we see that GOOG bottomed out on 11/21/08 about 70 trading days before SPY bottomed on 03/06/09. You can see that in March of 2009, SPY made its lowest low, however, even though GOOG made a low, it was a higher low than the swing low made on 11/21/08. GOOG was already showing signs that the trend was changing from a down trend long before SPY showed similar signs.

GOOG rallied through 01/04/10. SPY continued to rally until it reached a high on 04/26/10 approximately 77 days after GOOG reached its peak.
Zooming in we can see that GOOG dropped rapidly into February. SPY also dropped but continued to rally to a higher high into the April top. GOOG could only manage to reach the .618 geometric retracement from the January top to the February low. GOOG made a lower high, once again showing early signs that the trend was changing into a down trend long before SPY was showing any similar signs. 

GOOG formed a support line from a series of swing lows. After the .618 retracement, GOOG dropped and broke below the support line.
SPY has formed a similar support line, although once again lagging GOOG. SPY did rally through the first half of June, but failed to reach the .618 geometric retracement level.
What lies ahead? If the relationship continues, SPY is likely on its way to breaking below the support line as GOOG did in early May. It remains to be seen if SPY can rally enough to reach the .618 geometric retracement level, but if SPY continues to follow GOOG’s lead, the support line will likely not hold.

Disclosure: No positions