foxex: Moment of Truth

Read in Browser

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Tuesday, June 30, 2020

1. Will the new quarter see investors resume the upward trend?

2. The last 48 hours of trading in sectors

3. Robinhood users never more bullish on Apple

Market Moves

The last two trading sessions have become very important indicators for gauging the current market sentiment. Even though last Friday's strong sell off put the coming quarter in question, investors staged a two-day rally as the quarter came to a close. The indication seems to be that the profit taking is over. Thus the trading session tomorrow sets up a moment of truth to determine if investors will take a bullish stance for the upcoming earnings season. Volatility measures seem to hint that they will. Even as stock indexes edged higher the CBOE Volatility Index (VIX) also signaled the possibility that more bullish moves lie ahead.

The chart below compares State Street's S&P 500 index fund (SPY) with the VIX. The important and subtle detail on the chart is that the VIX closed at its lowest point since it spiked dramatically earlier in June. This implies that option sellers do not feel the need to price in as much risk premium as they had previously. That would be a very curious thing for them to do if they expected the markets to sell down further. The conclusion is clear to chart watchers that both professional investors and retail traders appear to be cautiously expecting higher stock prices in the weeks ahead.

The Last 48 Hours of Trading in Sectors
The chart below looks at another source of information to get a clue about how investors are positioning themselves ahead of the start of a new quarter. It compares each of the nine major sectors as tracked by State Street's S&P sector index funds. The sectors on the rise over the last two days' bullish trading include Technology (XLK) and Consumer Discretionary (XLY). This particular alignment is typical of a new or continuing upward trend. However the sector lagging the others is Finance (XLF). That's not typical for a market that is confident about the future, but in this post-pandemic world, very little is typical anyway.

Amazon's Brand Value Crosses $400 Billion Amid Lockdowns

Is It Time to Buy Beaten-Down Energy Giants?

SPONSORED BY INVESCO
The Complete Guide to ETFs
ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you.

LEARN MORE >

Robinhood Users Never More Bullish on Apple

The broker Robinhood has become synonymous with optimistic investors and traders that skew towards a younger demographic. The actions of this demographic have confounded many a long-time analyst over the past few months. While many such analysts were (and perhaps still are) expecting a dire melt-down in the markets, the indexes keep rising higher. This suggests that this younger demographic may have more influence on the markets than most analysts expect.

For this reason it might be interesting, at this moment in time, to get a peek at how Robinhood users feel about holding onto the most influential stock among all benchmark indexes: Apple (AAPL). Fortunately, thanks to Robintrack.net, we can. Featured below is a chart from that website which shows that the number of Robinhood customers holding AAPL has reached an all-time high. In fact, though AAPL dropped significantly on Friday, the chart shows that none of the selling came from Robinhood accounts. It is hard to paint a more bullish picture.

The Bottom Line

Stocks continued their rally after Friday's selling. This suggests that investors, professional and retail, are expecting to capture more gains in the weeks and months ahead. The relative price action among sectors seems to confirm this. The investor behavior among perhaps the most influential demographic also confirms this. The evidence can be seen by the way these younger investors are hanging on to AAPL, the most influential stock in all indexes.