The Mega Caps Strike Back

Taking a deeper look beneath the surface of today’s sizable market rally, we can clearly see it is a story of mega caps vs/ everyone else. Though the QQQ gained a healthy 1.8%, the MAGS ETF(MAG 7 stocks) gained an impressive 3%. In comparison, the QQQE (QQQ Equal weight) gained a paltry 3%.

This difference in returns was also visible intraday with clear outperformance by MAGS all day vs. QQQ and QQQE.

Taking a step back, this sudden shift in mega caps may be an inverse of the panic selling at the end of March. The V shaped rally have left many under exposed or short, and today’s surge into the largest and most liquid stocks was perhaps a panic buying moment where simply being able to get filled in enough quantity was the desired outcome.

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Leaders Begin to Consolidate

Though today saw a drastic difference in returns by group, this divergence has now been building for several days. The true leaders of this rally have largely peaked several days ago and have begun to consolidate. Given the market’s extension, this divergence in growth leaders suggests patience before adding to this powerful group.

Record Close for the S&P 500

The markets have staged a staggering comeback as investors reposition after an increased likelihood of an end to the middle east conflict. The S&P 500 is the first index to close at a new all time high.

Though this adds weight to the probability that we are now in an uptrend, price climbing above recent highs usually results in a pullback before continuing higher. The steep drop off in volume also raises concerns over the likelihood of this breakout continuing without some consolidation.

TER – A Leader Consolidates

As mentioned earlier, TER has been one of the leaders from the late March bottom as well as YTD. It is also one of the first and few stocks to make all time highs. Having already begun to consolidate despite continued market strength, it is likely to expect TER to retest its breakout should the market catch its breath, marking a high conviction pullback area.

VIAV – A Leader Consolidates

Likewise, VIAV has been one of the leaders from the late March bottom as well as YTD. It is also one of the first and few stocks to make all time highs. Having also begun to consolidate amidst continued market strength, it is likely to expect VIAV to close its gap should the market catch its breath, marking a high conviction pullback area.

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