Noteworthy Differences Between 2018 And 2020

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If the QQQ:TLT ratio can hold the breakout discussed above into year-end, it would represent a rare reversal. In the calendar year 2020, the ratio exceeded the lowest lows from both 2018 and 2019, then sharply reversed and exceeded the highest highs from both 2018 and 2019. The chart below is a weekly version of the QQQ:TLT ratio. Notice how the ratio broke above the 2018 and 2019 highs in the week ending August 15. The ratio has held the breakout for fifteen weeks, which is significantly different from price action in Q1 2018, Q4 2018, and Q1 2020.

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The S&P 500 has also exceeded both the intra-year lows and highs from both 2018 and 2019. Given the month of December is still ahead of us, it remains to be seen if the S&P 500 and QQQ:TLT can close above the highest closes from 2018 and 2019.

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Price action, which helps market participants monitor bullish conviction relative to bearish conviction, also provides some “keep an open mind about better than expected long-term outcomes” data points when reviewing the performance of the Nasdaq 100 relative to defensive-oriented physical gold. In Q4 2018 (point A in the chart below) investors began to favor defensive gold over growth-oriented QQQ. Something similar happened during the early stages of risk-off periods in Q2 2019 (point B), Q1 2020 (point C), and Q2 2020 (point D). It is noteworthy the present-day conviction to own growth-oriented QQQ relative to defensive-oriented GLD has pushed the ratio well above all four of those levels. Notice how a risk-on vs. risk-off battle was waged in recent months above points A, B, C, and D; the resolution thus far has been convincingly to the upside. In Monday afternoon’s session, when the S&P 500 was down, QQQ:GLD was up.

short takes ciovacco qqq GLD 2.png


In a weight of the evidence approach, the concerning similarities to 2018 are relevant and the notable differences between 2018 and 2020 are also relevant, helping us keep an open mind about a wide range of outcomes. If another bearish plunge in stocks occurs in late 2020 or early 2021, the ratio charts above will be helpful in terms of assessing the severity of the damage.

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Disclosure: This post contains the current opinions of the author but not necessarily those of Ciovacco Capital Management. The opinions are subject to change without notice. This article is ...

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