JUNE 17 INDEX UPDATE
-------------------------------
Recently, I have become more bearish/less bullish in light of the numerous HEAD & SHOULDERs patterns in the indices/individual stocks and other issues. While looking at the charts/market internals this weekend, I am not far from turning even more bearish, subject to certain things occuring.
Since the APRIL lows the RUT(Russel 2000-small caps) has significantly out-performed the NDX(Naz big caps), so its fair to say that the large caps were significantly weaker than the smaller stocks. The strength in the RUT is bullish, and has helped the NAZ rebound. However, what would happen if the RUSSEL started deteriorating with an already weak NDX. The reason I mention this is that the RUSSELL may be starting to top-out. A week and a half ago the RUSSELL formed a very slight LOWER LOW, and since it was so slight one could argue that it may be a double top formation. Regardless, both formations imply negativity to some degree - of course it is not certain and requires further confirmation. I feel that if the RUSSELL starts to roll-over, that could significantly hurt the NAZ, in light of the already weak/lagging NDX.
In line with the strength in the RUT, the NAZ SUMMATION INDEX, is already significantly higher than when the NAZ was at its all-time high above 5000(early 2000). Could this be considered a NEGATIVE DIVERGENCE.
stockcharts.com
Whether it is a negative divergence or not, one thing that is obvious is that the NAZ SUMMATION INDEX is no where near an important low. Not predicting that it will drop, but its fair to say that if it does drop there is plenty of downside potential room.
Another important issue which LEE first mentioned months ago, is MSFT. The NDX/NAZ is a market-cap-weighted index. With the decline in many of the NAZ large caps, MSFT has actually become a larger component of the NDX where MSFT now makes up 11.06% of the NDX. dynamic.nasdaq.com
Not predicting again, but if MSFT was to roll over, that would be a significant negative to the NAZ.
Its interesting to note that QCOM is now the 3rd largest NDX component with 4.09%, even larger than CSCO,ORCL, and AMAT. With a P/E of 579(per YAHOO), QCOM could also have a significant effect in the NDX if it was to roll-over.
Again, Im not predicting, just saying that the keys to watch for further negativity in the NAZ are the RUT and MSFT. |
