Conclusion, Investment Implications, Strategy

The total net assets invested in the the SPDR S&P 500 ETF (SPY) and Invesco QQQ ETF (QQQ) are both testing previous all-time highs, which we view as being just as important — if not moreso — as testing major overhead resistance levels in price.  Whether or not these asset levels are exceeded over the next week or so will be seen as a coincident if not leading indication of whether the current March rally in the S&P 500 (SPX) and NASDAQ 100 (NDX) continues into January, or stalls here and begins an overdue corrective decline.

Introduction

Investor asset flows are one of the only metrics we know of that consistently lead price direction.  Assets in = higher prices.  Assets out = lower prices.  We have seen this phenomenon drive gold prices lower since late August.  Moreover, we have also found that previous extremes in these asset flows represent major inflection/decision points in the price of an asset, in much the same way that a retest of a previous all-time high would be.

SPY: Assets Testing February All-Time High

The blue line in the lower panel of Chart 1 below plots the daily net assets invested in the SPDR S&P 500 ETF (SPY) since late 2017.  A corresponding chart of the S&P 500 (SPX), which SPY emulates, is plotted in the upper panel.

Chart 1

The red highlights show that these assets are currently re-testing the $324.2 billion level, their all-time high set on Feb 12th that immediately preceded SPX’s 35% collapse into the March lows.  We view this previous extreme in assets as a major decision point, one which must be exceeded for the current US broad market to continue into year-end — and reach our 3850 target.

Note that these assets’ retest of their previous January 2018 all-time high of $306.5 billion was retested on Sep 1st, which helped trigger the sharp 10% decline from SPX’s Sep 2nd high.

QQQ: Assets Testing Sep 2nd High

The blue line in the lower panel of Chart 2 below plots the daily net assets invested in the Invesco QQQ ETF (QQQ) since June.  A corresponding chart of the NASDAQ 100 (NDX), which QQQ tracks, is plotted in the upper panel.

Chart 2

The red highlights show that these assets are currently testing their Sep 2nd all-time high of $144.6 billion for the third time since that date — and that all three previous instances precisely corresponded with near term peaks in QQQ.  This is another prime example of the very close and often leading relationship that investor asset flows have with asset prices.

We view both charts as strong evidence that this is an important Tactical decision point for the US stock market.  If these assets can rise and remain above $144.6 billion in the days ahead, it will open the door for more near term strength in NDX and clear the way for a potential test of 13,700 — which is an additional 10% above the market.  If this extreme in investor assets is not exceeded, however, it will likely become the starting point of the next Tactical decline in NDX and the large cap Tech stocks it represents.