For years, every time the Invesco QQQ (QQQ) or the tech stocks threatened to roll over and break down, all they did was threaten. If there was a lower low, it was marginal, and, instead of breaking down, we zoomed higher thereafter.
Here is a chart of the QQQs dating back to early 2020. In March of 2021, (arrow on chart) there was a marginal lower low, but it didn't matter at all, up the favored tech stocks went. Folks just bought every single dip. And it didn't just start in 2020, it's basically been a decade of buy tech, until early 2021.
The Invesco Nasdaq Next Gen 100 exchange-traded fund (QQQJ) , which is the lesser technology stocks, what Invesco refers to as "next gen," only came into being in the fall of 2020. But you can see how different they looked starting in February 2021. Every dip wasn't bought, it was more chopfest, with that last surge upward in early November. It is one reason I say the majority of stocks have been, or entered, a bear market in the first quarter of 2021. Most of 2021 was narrow in the market, with the big-cap index movers driving the bus.
Now, I'd like you to take a look at the Energy Select Sector SPDR Fund (XLE) , because as you can see, and we've discussed in prior columns, it was terrible in 2020. It improved in 2021, but even there most of 2021 they spent in a big sideways mode. However, since the fall of 2021, XLE has been in a solid uptrend.
Why do I bring this up? Because every single time I think we will see energy roll over and we'll get a proper correction, we don't. These stocks do what the QQQs/tech did for years: Threaten and then push higher. Let's call it trading places.
But tech had gotten so large in terms of market capitalization that the stocks are able to fling the indexes any which way they want. Energy, on the other hand, is not big enough to sway the indexes. It is, however, widespread enough to have an effect on breadth. When financials and energy do well, breadth does well. When tech does well, it tends to suck the life out of everything else.
That is the either/or market I referred to so often in 2021. While I know everyone hates it when growth stocks and tech stocks do poorly (perhaps it says something about them still being overowned?), the reality is the market is healthier on some level when they are not the only game in town.
As for Monday's rally, it was nothing to write home about. Breadth was good enough to keep the McClellan Summation Index groping for a turn.
The Oscillator, which is based on breadth, finally crossed the zero-line for the first time since March. However, since breadth has been positive for six of the last eight trading days, the Oscillator will be overbought again midweek this week.