Conclusion, Investment Implications, Strategy

The recent expansion to new all-time highs in the total net assets invested in the the SPDR S&P 500 ETF (SPY) and Invesco QQQ ETF (QQQ) indicate near term investor conviction in higher prices.  As long as this recent expansion continues, the current Tactical market advance — as indicated by our Correction Protection Model (CPM) on Nov 5th — is likely to extend through year end and potentially into January.

Introduction

In our Dec 1st Special Report we pointed out that the total net assets invested In the SPDR S&P 500 ETF (SPY) and Invesco QQQ ETF (QQQ) were testing previous all-time highs, and said whether or not these asset levels were exceeded over the next week or so would be seen as a coincident if not leading indicator of US stock market direction through the end of the year.  Three days later, the assets invested in both ETFs are making new all-time highs.

QQQ Assets Exceed $144.6 Billion

The blue line in the lower panel of Chart 1 below plots the total daily net assets invested in QQQ since June.  A corresponding chart of the NASDAQ 100 (NDX), which QQQ tracks, is plotted in the upper panel.

Chart 1

The rightmost green highlights show that these assets have over the past three days exceeded their Sep 2nd all-time high of $144.6 billion, expanding to as high as $147.1 billion on Dec 3rd after bumping up against that former “high water mark” on Nov 6th, Oct 13th, and Sep 2nd.  Note that all of these “bumps” immediately preceded near term peaks in NDX. 

We view this breakout to new highs in asset flows as a coincident if not leading indication of more upcoming strength in large cap Technology stocks, which typically lead the US broad market.

SPY Assets Exceed $324.2 Billion

The green highlights in Chart 2 below show that the daily net assets invested in the SPDR S&P 500 ETF (SPY) have also exceeded their previous all-time high of $324.2 billion over the past few days, expanding to as high as $328.4 billion on Dec 2nd.

Chart 2

This chart corroborates the recent expansion in investor assets – which indicates investor conviction —  that we have seen in QQQ this week.

As long as these assets remain above the $324.2 billion area, we will expect the current US broad market rally — which began when our Correction Protection Model (CPM) moved back to a Risk On status on Nov 5th — to continue through year-end.