by Bryan Perry

May 19, 2020

The U.S. stock market has put up a strong performance off its March 23 bottom, if one is long the Nasdaq, S&P 500, and the leading mega tech and healthcare stocks. The draft horses of these sectors would include big weightings in the Invesco Nasdaq QQQ Trust (QQQ) and SPDR S&P 500 ETF (SPY) shares. We’re all keenly aware of just how much of the heavy lifting they have pulled.

The obvious question – yet to be answered – is: Can the cloud kings, the 800-pound e-commerce retailers, fintech celebs, 5G giants, stay-at-home hotties, and cure COVID-19-now stocks continue to trade higher and carry the market’s water? It stands to reason that at some point the stock market needs to broaden out, where other sectors start to play catch up to sustain the rally, assuming the economy is going to recover.

After reading a very insightful article on Seeking Alpha this past weekend, penned by Eric Parnell, CFA, titled, “You Want The Stock Market To Go Down,” I wanted to highlight some very salient points in the article while overlaying my own thoughts to express where we are in the market’s recovery cycle.

This chart of the S&P 500 Equal Weight ETF (RSP) paints a different picture from the high-flyers. It clearly reflects what the real economy is experiencing. Where shares of SPY challenged to trade above their 200-day moving average last week, shares of RSP are trading well off their 200-day m.a.

Invesco ETF

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Here’s the rub. Despite the $7 trillion in stimulus fashioned by the Fed, Congress, and the Treasury to shore up markets and investor confidence, there are some troubling signs underneath the market that emerged last week, namely the appearance that the financial sector is really struggling. For the rally to build on itself, it is important that the financials participate to the upside.

The Financial Select Sector SPDR (XLF) experienced a minor move up off the March 23 low and failed to take out its downward sloping 50-day m.a. Some leading bank stocks are now below their March lows

Financial Selelct Sector

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There’s also trouble brewing in the transportation sector. It is widely understood that the Dow Jones Transportation Average is a leading indicator for the broader U.S. stock market. And most would argue that the six airline stocks within the 20-stock index are the ball and chain for the sector at present.

What if we instead look at the iShares Transportation Average ETF (IYT), where the top 10 holdings that make up 71.8% of total assets do not include any airline stocks or Boeing Co. (BA), but are made up of the leading railroad, trucking, air freight, and logistics stocks? Stripping out these losers should provide a better tell for the economy. After what was looking like a genuine rebound building on itself in late April, shares of IYT have shed 11.6% and are trading back below its sharply downward sloping 50-day m.a. This implies that a retest of the March lows is arguably in the cards for transportation, too.

Navellier & Associates does not own Boeing in managed accounts and our sub-advised mutual fund.  Bryan Perry does not own Boeing personally.

Transportation Averages I Shares

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Similar chart patterns exist for several other sectors, including the S&P 500 Industrial Sector SPDR (XLI), the S&P 500 Real Estate Sector SPDR (XLRE), S&P 500 Energy Sector SPDR (XLE), and even the S&P 500 Utilities Sector SPDR (XLU).

Looking Closer at the Trend in Market Volatility

Now let’s look under the hood a bit more at internal market volatility. The VIX of VIX (or VVIX) is a measure of the volatility of the Chicago Board Options Exchange (CBOE) Volatility Index (VIX).

The CBOE’s VIX measures the short-term volatility of the S&P 500 indexes, and the VVIX measures the volatility of the price of the VIX (that’s the Wikipedia definition). The VIX is trading back below the 40.0 “real fear” level, closing last Friday at 31.89, so what’s the problem?

The VVIX is a leading indicator for the VIX. It peaked on March 19 before the VIX peaked on March 23. The VVIX started moving sharply higher as of early last week, probably reflecting the selling pressure in the financials. This sudden reversal in the VVIX is a yellow flag and could be signaling that the risk of a selling pressure will return in the weeks ahead.


Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Friday’s passage in the House of Representatives of the Nancy Pelosi-sponsored $3 trillion HEROS Act gave the market another temporary sugar high and stemmed the selling pressure of prior sessions. A watered-down version of maybe $2 trillion will likely get past the Senate and signed by President Trump, and the market is being buoyed by this latest fiscal stimulus development. At least that’s how I see it.

Going forward, the reopening of the American economy will determine if the yellow flags being raised turn into red flags or green flags. Testing for COVID-19 and antibodies is about to be offered on a more widespread basis, and the number of coronavirus caseloads will probably rise as a result.


The most important data point that I believe will influence the stock market is fresh and updated data on hospital admissions due to the virus. If this number plateaus and tapers off as states reopen for business, the market will very likely ride out whatever negative economic and earnings news is thrown at it and thereby avoid a retest of the lows. So let’s hope the reopening of America goes not just “well,” but better-than-expected, because this shut-in life we’ve all being living through amounts to a big fat zero.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Deflation is Spreading

Income Mail by Bryan Perry
Here’s Hoping the Reopening Goes According to Plan

Growth Mail by Gary Alexander
This Market Recovery is Justified by History

Global Mail by Ivan Martchev
The Banks Are Likely to Take Out their March Lows

Sector Spotlight by Jason Bodner
Just What Does “Overbought” Mean?

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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