Should you watch the NASDAQ-100? Or, should you watch the NASDAQ Composite? We recommend watching both, however you do need to understand the holdings therein. The NASDAQ-100 is almost entirely technology stocks, while the Nasdaq Composite more closely resembles the NYSE Composite. To put it another way, NDX is technology focused, COMPQ is broad based, with components similar to the 9 SPDR sectors.
XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV and XLY are all represented.
With this in mind, technology stocks were sold pretty hard over the past few weeks. This selling has pushed the number of stocks trading above their 50sma to levels where we have seen sustained bullish moves. No one can predict we will continue higher now, but the probabilities are beginning to favor the bulls. Look at theNASDAQ-100 chart below and consider where NDXA50R is right now.
Given nearly 50% of the NASDAQ-100 weighting is made up by so few stocks, its no wonder that we dropped as much as we have leading into the closing bell on Tuesday.
Several layer of support are below. The wicks below current levels at 5634.58 would represent a (-4.46%) pullback from the ATH (5897.69) and the level below that at (5580) would represent (-5.387%). Both levels are conductive to a bullish follow through into the end of year. Again, no one knows if we will bounce here and sustain the move, we are merely looking at the probabilities.
The Composite looks much better and still resides above its 50ma. RSI, MACD and Stochastic all point to lower levels as a possibility, so we will watch this chart as well.
The Take Away?
We are still taking profits into strength and would advise doing the same, until we get a better sense of market direction. We took off 5 positions yesterday and intend to take profits in more winning positions as we move higher.
Sector rotation will likely be different than the previous 6 months, so we anticipate the next three days will see fund managers dumping their losers into the end of June. July is a favorable month, when considering seasonality. These fund managers will likely puts this fresh capital to work in July, so we will watch where the money goes.
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