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TPA Analytics: This Rally Is Impossibly Narrow

By Jeffrey Marcus | July 10, 2020

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Recovery, TPA Analytics: This Rally Is Impossibly Narrow

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Turning Point Analytics utilizes a time-tested, real-world strategy that optimizes the clients entry and exit points and adds alpha. TPA defines each stock as Trend or Range to identify actionable inflection points.


THIS RALLY IS IMPOSSIBLY NARROW

The benchmark S&P 500 is still down 1.88% on the year, but it is up 40.57% from the 3/23 low, and only 7.65% away from the all-time high close of 3386.15 set on 2/19.  It seems like we have dodged a bullet, yet a look under the surface reveals a much sicker market.  The relative performance chart below shows that while the S&P 500 is still down 1.88%, but TPA’s BIGTECH Index (the top 8 stock in the NASDAQ 100 by market cap) is up an astonishing 48.99% year to date (YTD).  The table below shows that these 8 stocks represent $8 trillion in market cap, which is 29% of the market cap of the S&P 500 ($27.3 trillion).

TPA ran the numbers to see just what effect these 8 stocks have had on an index of 500 stocks.  The table below shows the performance of these 8 stocks YTD and the weight of each stock in the S&P500.  The BIGTECH effect has been to add 8.71% of performance to the S&P 500 YTD.  Since the S&P 500 is down 1.88% for the year, without the BIGTECH stocks, the benchmark would be down 10.5% in 2020.

We have mentioned this before, but a healthy rally is one with broad participation. The current rally is very narrow;  historically dependent on less than 2% of the S&P 500 member stocks. This means the overall performance of the S&P 500 is not representative of the market as a whole and it also means the index performance is highly levered to a very small group of stocks.

In addition, TPA Canaries in the Coalmine (table below) shows that the 14-day RSI of the ratio of BIGTECH/S&P 500 is also at 70.87. That RSI level denotes that BIGTECH is overbought relative to the S&P 500. At this juncture, one of two things can happen to make the BIGTECH/S&P 500 ratio less overbought:

  1. Stocks other than BIGTECH can rise faster than BIGTECH; or,
  2. BIGTECH can fall. 

Given how much BIGTECH has meant to S&P 500 performance, investors should pray for the former.

Recovery, TPA Analytics: This Rally Is Impossibly Narrow Recovery, TPA Analytics: This Rally Is Impossibly Narrow


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Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.

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2020/07/10
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