Macro Wrap – Nasdaq’s Long-Term Top

by Enis February 27, 2013 8:00 am • Commentary

The rally in the past 3 months has been particularly surprising since the former bull market leader, technology, has been a serious laggard.  I’ve taken that as a long-term warning sign for the health of this bull market.  When the leader tops before the broader market (as financials did in 2007, or tech did in 2000), it usually signals a dearth of buyers, and a bull market run near its end.

One look at the weekly chart in the NDX index shows the concerning price structure:

NDX index, 3 year weekly, courtesy of Bloomberg
NDX index, 3 year weekly, courtesy of Bloomberg


Since the index broke out from its 2450 resistance level in early 2012 (led by AAPL’s run), the index has traced out an ominous head and shoulders pattern.  It’s not a textbook pattern, but what’s more telling for me is the fact that the bounce since November has not been able to reach the heights of spring 2012, much less the Sept 2012 highs.  The prior leaders have run out of buyers.

The broader indices are being propped up by buying in the defensive sectors, with staples and health care continuing to trade near all-time highs.  That does not mean that the market has to turn today or tomorrow, but along with the weakness in technology, it’s one more indication that this bull market is long in the tooth.

Markets Overnight:

  • Asian markets mostly followed the U.S. into the green, with the exception of Japan, which was down more than 1% due to strength in the yen.  
  • European markets have traded mostly in the green, up 0.5% now.  However, the Euro Stoxx 50 index is now down 2% on the year after yesterday’s weakness.
  • Quiet overnight in the currency market, with the dollar mixed.  Commodities close to flat, and Treasury bonds a touch higher.
  • Durable Goods data at 8:30 am EST, and Pending Home Sales released at 10:00 am.
  • Bernanke testifies today in front of the House.
  • Target trading flat after reporting earnings and guidance basically in line.  The stock initially traded up, but has since sold off.