For the most part, the rally off of the early 2018 correction lows has occurred on strong breadth, or widespread participation from individual stocks. We are starting to see some potential signs of a change in that trend this week, however. As we mentioned yesterday, the small-cap market failed to keep pace with the new high in the Nasdaq 100 (NDX) on Tuesday. We saw another manifestation of the possible “thinning” of the tech rally as well on Tuesday (7/24). While the NDX closed at an all-time high, the accompanying breadth was relatively very weak for a new high.
As evidence, the % of both advancing issues and advancing volume on the Nasdaq exchange equated to less than one third of all exchange data on Tuesday. In the history of the NDX, that is the only time we have ever observed such conditions on the occasion of a 52-week high in the index. Furthermore, at 32.4%, the advancing volume was the lowest on record for any NDX 52-week high.
As the chart indicates, there have only been 15 occurrences now when the NDX closed at a new high with less than even 44% of advancing Nasdaq volume. A few of those instances marked tops of at least short-term significance in the index. So should we be concerned – or is this just a 1-day fluke data point?
Given the strong participation throughout most of the current multi-month rally, we would tend to give bulls the benefit of the doubt. However, would an objective, historical examination of the data warrant such patience? In a Premium Post at The Lyons Share, we take a quantitative look at the historical data to determine how concerned we should be about a “thinning out” of the tech rally.
If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!
Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
The Invesco QQQ (QQQ) rose $1.28 (+0.71%) in premarket trading Friday. Year-to-date, QQQ has gained 15.78%, versus a 6.60% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Dana Lyons, JLFMI and My401kPro.