Follow the leaders

Lower but slower

An equal weighted portfolio of Apple (AAPL), Microsoft (MSFT) and Nvidia (NVDA) has a high degree of correlation with the Nasdaq 100 Index (NDX) and Invesco’s popular ETF that tracks the index (QQQ). The degree of positive correlation runs between 84 and 99, which is to say that the line chart comparing the two will look very similar with rare exceptions.  

That’s not a big surprise considering these three make up 24% of the influence on the tech index, but investors should be aware of this fact nonetheless. The reality is, wherever these three stocks go, the index follows. Late in 2024 and early in 2025, anyone comparing the performance of that 3-stock portfolio and QQQ would have noticed a surprising divergence, implying lower prices were on the way.

Even though Wednesday’s close was lower, the size of the candle was smaller than the most recent bearish days–suggesting that downward velocity is slowing. Since candle sizes are shrinking back from their largest ranges, and the Volatility Index (VIX) is inching closer to a sub-30 closing print, we may be in for a little bit of bullish rebound if investors respond positively to the quarterly report from Netflix (NFLX) after Thursday’s close.

Stop sign

My month-by-month method for watching markets uses an indicator that compares the S&P 500 (SPY) with the Utilities sector ETF (XLU) as proxies for investor sentiment. Right now, investors are clearly moving money into safer places.

This risk-off behavior is usually consistent with falling prices and the onset of a bear market. As of early April, the arrows have aligned with the stop sign indications–a signal to get money to the sidelines and wait. The signal has not reversed, so beware of further downside pricing in the near future.

Gold flips the script

The price of Gold has its own drumbeat where volatility is concerned. Gold is often used as a hedge against uncertainty, volatility and the threat of downward trending prices in other asset classes. So it makes sense that the most volatile prices for Gold come along not at market bottoms, but at market tops. Additionally, volatility in Gold prices is likely to trend higher as a market top approaches, and lower as the market bottoms out. This dynamic can be observed in the following chart.

The surprising news is that the ATR for State Street Gold Trust (GLD) is not showing either a new high or a new low. This suggests that any upward trending, or downward trending, price move is unlikely to be complete as it is right now.

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