Going into the after-hours of Thursday’s trading session last week, we had a market that was still struggling to find direction until once again, headlines out of Europe seemed to transform equities into “risk on” mode at the snap of a finger.
We have mentioned in previous recaps of the sensitivity of the markets tied to the daily headlines, for the good and bad, that are coming out of Europe. This said, equities rallied furiously to close the week, with the SPX finishing up 2.49% just on Friday alone and just shy of technical resistance around the 1363 level.
Related to this, our market technician David Chojnacki pointed out late last week that the technical action in Technology shares forces us to take notice. Having been the market leader in terms of technical relative strength since well before the 2009 market bottom, the NDX (Nasdaq 100 Index, YTD up 14.92% versus the SPX (S&P 500) up 8.58%, and in trailing five year period up 34.78% versus the S&P 500 DOWN 10.92%), when the Tech sector bucks the trend, which in general has been down, marred with whipsaw technical action, we have to examine closely.
Apple (NasdaqGS: AAPL), as we have noted repeatedly throughout this year in these recaps, continues to have the heaviest weighting in the NDX, at 17.98%, and it is also the largest component in the SPX at 4.54%. So it is not only “Technology,” broadly, that has tended to lead the market higher the past several years, but the majority of the credit goes to AAPL, singularly, as the stock is up 44.20% YTD, and a mind numbing 378.52% in the trailing five year period.
With the SPX not quite touching the technical resistance area of 1363 on Friday (official close was 1362.16), we expect this level to provide some near term resistance. Obviously any equity follow through that effectively pierces this level and maintains some upward posture above it for a few days on end, would be an extremely healthy sign in terms of the viability of any lasting equity rally throughout the remainder of the summer.
Bulls that are hopeful that Friday’s rally is “only the beginning,” will point to a VIX that has recently plunged as low as a $16 handle, and consistently trading below its 50 day moving average after spending weeks if not months in 2012, above this level. Similarly, pundits will also point to the burgeoning weakness in the Longer Dated U.S. Treasury bonds, as proxy TLT (iShares Barclays 20+ Year Treasury Bond) is finally starting to see some signs of ultimately cracking.