Yet Another Warning Sign for the Nasdaq 100

June 17, 20242 Comments

As the Nasdaq 100 rises to record highs, we see fewer of its stocks are in uptrends, and more are hitting fresh lows. This is evident across time frames to a level that has never been seen. Under similar circumstances, the Nasdaq 100 rarely, if ever, escaped weakness over the medium-term. The data – and commentary below – is courtesy of sentiemntrader.com. First, lets just take a quick gander at the NAZ daily chart to get a feel for where we are.

NASDAQ 100 Technical Observations

  • 15% > 200 day SMA (blue line on chart)
  • Overbought MACD, RSI (bottom 2 panes)
  • Moneyflow momentum (MFI) diverging negatively after an overbought signal (first pane below price)

The NASDAQ is currently overbought by these metrics, with some early signs of investor fatigue (MFI)

Nasdaq Composite INDX (June 17, 2024 11:16am)

 

OK, now let’s look at Sentimentraders’s quant work on record low breadth for the NAZ:

Sentimentrader’s Observations

(courtesy www.sentimentrader.com)

“The big-tech-dominated Nasdaq 100 (NDX) continues to notch record high after record high. However, many of its stocks are not only lagging, but they’re falling to monthly, quarterly, or even yearly lows. This is not normal. In fact, it’s never happened before to this degree.

Take, for example, the percentage of stocks in the Nasdaq 100 that are hitting 1-month highs minus those hitting 1-month lows. It’s a negative number, meaning more stocks are falling to monthly lows than rising to monthly highs.”

Nasdaq 100 Net % of NDX Stocks at 1-Month Highs Minus Lows (Sentimentrader)

Again, according to Sentimentrader: “As of Friday, there were fewer than 3% more stocks at 52-week highs than lows. This exceptionally weak reading was last seen about 25 years ago.”

This similar setup has resulted in tendency for positive returns on the NAZ pretty much a flip of a coin, with the average returns (see the median return line on the chart below) being negative over most every timeframe up to a year. Below the chart, note the table outlining returns:

Nasdaq 100 after 3-year high with < 60% of stocks above 10-day avg, < 70% above 50-day and < 80% above 200-day (Sentimentrader)

Conclusion

Understand that markets can have periods where momentum can carry far beyond potential exhaustion points. Look at how far the tech bubble took stocks into bubble territory before the 2001 crash. Same with the period leading to the sub-prime and oil collapse in 2008/9.

We must be aware of the quant readings like my Bear-o-meter reading, of the poor breadth, of valuations, and the 3 stock concentration I have been mentioning in recent blogs. But trend trumps all. And so far, we still have the major US indices holding support (DJIA, SPX, NAZ).

However, the TSX recently cracked the support level I noted in the recent VT Update (you might want to subscribe to that if you do not already).  That is, 21,800. This suggests an early bear trend potential for the TSX. The US markets are showing all of the signs of danger, but it ain’t over until the fat lady sings, as is said.

Given the danger signals, it pays to be cautious. Yet, the trend is positive (except for the TSX). So it’s a ying/yang situation. As such: We are holding 20% cash in our models. We’ll go deeper into cash upon the breaks noted in the recent VT Update. Now is not the time to sleep at the switch. Watch the NASDAQ 100 and other markets for breakdowns, and act accordingly as/if/when they happen. Don’t predict. Do prepare. Happy trading!

2 Comments

  • The risks of being in tech and in the TSX sounds more and more like that of Oceangate’s Titan going to the Titanic once more, rolling the dice, ignoring dangers and warnings from experts.

    I agree on the laws of gravity as you say…many books on the subject can back this up.

    Reply
  • the big montly chart seems to indicate the SPX can get to 6000 on the ABC pattern.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

Never miss another blog post!

Get the SmartBounce blog posts delivered directly to your inbox.

Topics

Topics

Recent Posts

When Market Internals Don't Confirm New Record High, Risk of Drawdown Rises (United States: S&P 500)

Divergences

media 3

Place ‘yer bets!

MSFT Price 1990-2015

Tech Stocks – What Happens When the Music Stops?

nat gas long

Here’s a sector that may outperform this summer

naz breadth

Yet Another Warning Sign for the Nasdaq 100

Canada flag in front of a business building | Canadian Businesses

Canadian Businesses

Keith's On Demand Technical Analysis course is now available online

Scroll to Top