Market Participation A Possible Red Flag

August 26, 2015

So while the market-cap-weighted version has rallied since the end of February, the same cannot be said for the equal-weight counterpart; meaning, the growth has been fueled primarily by the “big guys” only and not the collective group. Conversely, the smaller names in the index to which the equal-weight version has more exposure have lagged.

Here is a scatter chart of the relative weight of the constituents of QQEW compared with QQQ on the horizontal, and the performance since the end of February on the vertical (with some of the “big guys” notated). The red zones are the cause of the negative dispersion (either underweight a strong performer or overweight a weak performer).

The Takeaway

While the broad equity markets have done essentially nothing over the past six months in terms of price moves, the underlying breadth action over the same period shows signs of cracking. There is a chance this dispersion could reverse to the upside, but a lack of participation is a definite warning sign for the overall health of the market.


At the time this article was written, Stadion held long positions in QQQ. The above constitutes the personal, professional opinion of Clayton Fresk, CFA, and does not reflect the views of Stadion Money Management LLC. References to specific securities or market indexes are not intended as specific investment advice. Founded in 1993, Stadion Money Management is a privately owned money management firm based near Athens, Georgia. Via its unique approach and suite of nontraditional strategies with a defensive bias, Stadion seeks to help investors—through advisors or retirement plans—protect and grow their “serious money.” Contact Stadion at 800-222-7636 or www.stadionmoney.com.

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