During last week’s holiday-shortened trading we saw the S&P 500 close at its highest levels since prior to last August’s swift equity market sell-off.
Our market technician David Chojnacki pointed out in a strategy note last Friday: “The big story was the Nasdaq-100 closing at a new high (last Thursday) and its highest close since February of 2001.” [Nasdaq-100 ETF Breakout]
Late last year in these weekly recap pieces we pointed to the necessity of the technology sector to demonstrate and maintain leadership in order for any sustained equity rally to take place, and so far in 2012, this has certainly been the case. It is no coincidence that the second heaviest weighting in the Nasdaq-100, Microsoft (MSFT) with an 8.49% weighting, turned in a stellar showing last week and closed at its highest level since early 2010 on enormous trading volume on Friday post earnings.
We see support in the Nasdaq-100 in the 2429 down to the 2425 range as well as down at 2401, with technical resistance at 2437 and 2450. On the SPX, 1312 and 1300 should provide near term support while 1316 and 1325 are resistance levels.
In addition to technology, a sector that has been tremendously beaten down over the last several years, financials continued to rally last week and we also saw evidence of upside call buyers, expressing the sentiment that this sector rally is not yet finished.
Financial Select Sector SPDR (XLF) closed at its highest level last October of last year, and now squarely remains above its 200 day moving average. We point out that financials still have quite a bit of ground to make up in terms of relative under-performance, as XLF is down 14.09% in the trailing one year period versus SPX up 2.79%, and furthermore, in the trailing five year period, XLF has fallen a hefty 61.74% versus the SPX down only 7.61%.
From a fund flows standpoint in equities, SPDR S&P 500 (SPY) reeled in about $1.6 billion in new assets, followed by PowerShares QQQ (QQQ) with around $650 million accumulated. “Risk-on” sentiment also seemed to play out in the fixed income space last week as both SPDR Barclays High Yield Bond (JNK) and iShares iBoxx High Yield Corporate Bond (HYG) pulled in new assets, approximately $800 million collectively via creations while iShares Barclays 1-3 Year Treasury Bond (SHY) and iShares Barclays 1-3 Year Credit Bond (CSJ) saw sizable outflows. [High-Yield Bond ETFs Rally]
This is possibly an indication that portfolio managers are moving away from cash and equivalents and conservative yielding Treasury bond positions and either back into equities, or into higher yielding bond positions via ETFs. Additionally, emerging markets continued to attract new assets last week, for the second week in a row we might add, as Vanguard Emerging Markets (VWO) accumulated nearly $500 million in flows. Interestingly, whenever VWO has registered near the top of ETF creation activity in the past, it has generally been at the expense of a competing ETF, iShares MSCI Emerging Markets (EEM), as portfolio managers have engaged in swaps away from EEM. However, in the past several weeks, the flows into VWO appear un-linked to EEM, and are simply a reflection of portfolio managers moving into higher risk segments of the equity market such as emerging markets.
In other activity, despite crude oil prices weakening during the latter part of last week, oil/energy related equity ETFs saw inflows for the most part, including creation activity in Market Vectors Oil Services (OIH), Energy Selecto Sector SPDR (XLE) and SPDR S&P Oil & Gas Exploration & Production (XOP).
Finally, on the commodity front, silver sprung to life last week as iShares Silver Trust (SLV) for example, which is now up nearly 16% in 2012, climbed above its 50 day moving average. [Silver ETFs Shine]
The ETF is considerably higher than its lows that were registered in late 2011, and we also witnessed large call buying in SLV last week as well, also perhaps fueling the rally. Late last week in options we saw large bullish call buying in SLV and ProShares Ultra Silver (AGQ).
The one item that might give bulls, and those on the sidelines looking for an ideal entry point into equities some pause, was the lack of heavy trading volume in the equity markets last week on the whole, even following a slew of company earnings reports. Many single equity names did trade healthy levels of volume last week, such as Microsoft or IBM for example, but on the whole, we witnessed overall volumes that fell below average levels. Going into this week, we will be watching closely to see if there is a healthy follow through from last week’s equity rally, and ideally heavier volumes that would display some conviction.
SPDR S&P 500
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Full disclosure: Tom Lydon’s clients own SPY, SHY and SLV. John Spence owns ZSL.