Market Analysis

Lords of the Gaps

Not all market gaps fill, some can stay open for years or never fill. But most gaps fill. Sooner or later.

In this context a chart of the $QQQ over the past year and a half reveals a stunner of a chart: 16 open gaps that I can count and perhaps observant readers can point to more. None have filled, none have ever even bothered to revisit the trading range. The culprit: Overnight magic.

Ever since the February 2016 correction and its subsequent ongoing record global central bank intervention (see World War III for charts and numbers) all lows are made in the dark of the night never to be retested again:

Heck, here’s the gap action just since the initial French election:

With apologies to Tennessee Ernie Ford: 16 open gaps and what do you get? Another day older and deeper in debt.

Consider the largest components of $QQQ: $FB, $GOOGL, $AMZN, $MSFT & $AAPL.

Check the historic price disconnect in just 2 of these:

Ironically one of the largest beneficiary of this price action (and perhaps a not insignificant contributor) may be at least one particular central bank who not only owns all 5 of these components, but has made them amongst its largest 7 holdings in its own very own long hedge fund – The Swiss National Bank:

Yes, tiny Switzerland has a central bank with a hedge fund owning a fast growing portfolio of $80B financed by unlimited cash and an apparent burning desire to buy US stocks:

So while the US Fed may not be buying US stocks directly others are. The earlier mentioned 5 stocks now comprise 42% of the market cap of the Nasdaq 100 and its top component is of course the largest market cap company of the world: $AAPL.

It recently missed earnings estimates, but it matters not. The buying remains relentless almost 4 million shares of $AAPK were bought by the Swiss National Bank during just Q1 2017:

Is it then any surprise as to why the underlying weakness in the rest of the index matters little? As the $NDX closed yet again at new highs on Friday almost 30% of its components remain below their 50 day moving averages:

Either way you cut it or slice it the $QQQ and the Nasdaq 100 are top heavy:

While the political world is upset by Russia’s interference in US elections perhaps investors may want to focus on central bank interference in US and global capital markets.

Indeed, investors may be ignoring 2 gaps larger than any of the gaps on the $QQQ chart:

  1. None of these central bankers face any personal consequences in overpaying for stocks. Individual investors eventually do.
  2. None of these central bankers mind paying more for less. Individual investors should.

Remember: Most gaps fill.

1 reply »

  1. Excellant article. Thanks for all the hard work. Note: based on the Apple Inc. (AAPL) vs. Qualcomm (QCOM) royalties dispute I sold all of my Apple Inc. shares on Monday 5/1/2017 … Yes, I sold before the earnings report and the conference call … but, my homework on Apple Inc. and its suppliers says Apple Inc. wasn’t going to get enough parts … and fewer gadgets suggests lower revenues. With no surprise, Apple Inc. confirmed my homewwork with reduced guidance and Qualcomm comments that suggest Qualcomm thanks to strong demand, “could” shift its Snapdragon chips, in allocation, away from Apple Inc. suppliers not paying royalties … to Android customers that are paying royalties. Without modems … Apple Inc. could be reporting a really bad quarter … a miss out on bringing out its iPhone 8 …

    What are your thoughts?


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