Not surprisingly, QQQ led all ETFs in outflows, likely from reciprocal effects of AAPL’s stock falling as of late. We wondered out loud in this missive a few weeks ago (10/18/12) on how long AAPL shareholders will tolerate the status quo in regards to the newer leadership at the company under Tim Cook. Going into the weather shortened week last week, Cook did announce some significant executive reshuffling among some of his underlings. However, if the stock performance is any measure, the market didn’t like this either as we cannot recall the last time we saw AAPL stock crash through its 200 day moving average with such ease (to close out a very ugly week, weather and market wise) like it did on Friday.
Year to date, AAPL still has broadly outpaced the SPX, as it is still up 42.42% versus the next highest weighted components (XOM, which is up 6.50%), and GE which has rallied 18.98%. However, the market seems to be in 1986 Janet Jackson “What Have You Done For Me Lately” mode, with AAPL clearly being an albatross on both the SPX and the NDX (AAPL down 12.67% in the trailing one month period versus #2 weighting in NDX MSFT down only 0.54% and #3 weighting GOOG down 9.11%, also hit rather hard. The NDX itself is down only 5.09% during this same trailing one month time period, which would suggest that there is “some strength” somewhere. In examining the SPX in terms of trailing one month performance, the SPX is down 2.02% with AAPL of course down a stunning 12.67% and other leading components XOM down 1.58% and GE down 6.49%.
Without doing any complete dissection nor any complicated math, one can likely see that the lower tier names (as far as weightings) of these market cap weighted indices, both the S&P 500 and the Nasdaq 100 seem to be pulling the weight, at least recently. So perhaps the recent market carnage is simply a giant “profit take” specifically in AAPL and AAPL heavy ETF products heading into the uncertainty of the U.S. elections coupled with what looks like a hugely impactful exogenous event, the financial effects of Hurricane Sandy and exactly what the repercussions on the economy and policy may be (under the current or a new administration). Thus, as one might expect, the VIX (CBOE Volatility Index) which had spent the past several months as low as $13-$14, rose sharply on Friday to close at $17.59.
It does remain however slightly below its 200 day MA (17.76) and recent high of $19.65, so it should be monitored ever so closely early next week, especially as we receive more clarity surrounding the Hurricane Sandy situation as well as any inklings of how the elections will pan out. Thus, “long VIX” products were catching a bid on Friday, such as VXX, UVXY, and VIXM to name a few. We would expect to see additional volatility, as well as plays on volatility and likely defensive positioning until exogenous events namely the election and the most recent, the Hurricane, sort themselves out.
Absent several late last week larger ETF rebalance trades (i.e. IEI, IJH, IWM as mentioned above), market participants have largely been inactive in terms of making any major moves either way until the aforementioned situations clear themselves up.
Top Asset OUTFLOWS (Redemptions) Notables:
#1 QQQ (PowerShares QQQ) ->$600 million #2 XLB (SPDR Basic Materials) – $242 million #3 DIA (SPDR DJ Industrials) -$228 million #4 IYE (iShares DJ U.S. Energy) -$189 million #5 IVW (iShares S&P 500 Growth) -$151 million