In this morning’s Macro Wrap, I touched on the recent underperformance of the Nasdaq vs. the S&P 500 index:
For many months now, momentum traders have harped on the fact that leadership stocks and sectors have held up well even when the broader market indices have corrected. Over the past few weeks, many of those same traders are voicing caution as leadership has begun to underperform.
The Nasdaq’s underperformance has reflected that price action. It’s too early to read too much into that weakness, but my hunch is that the Nasdaq’s reaction to its 50 day ma in the coming week should offer more evidence of whether the mini-selloff on Friday is the start of something more substantial.
Well, both the Nasdaq composite and the Nasdaq 100 indices have breached their 50 day ma’s today, though they are currently trading quite close to that level. For the second straight day, Nasdaq stocks came under pressure right after the opening bell.
The Nasdaq 100 / S&P 500 ratio shows the steady trend of outperformance by the Nasdaq over the past year:
While the Nasdaq 100 index sits right on its 50 day ma, the ratio chart broke its rising 50 day ma last week for the first time since November. In fact, at one point today, both the S&P 500 and the Nasdaq 100 were close to unchanged for the first time since January.
Leadership continues to wane, and the break of the uptrend on the NDX / SPX chart is one more illustration of that phenomenon. The ratio closed 2013 around the 1.94 level, so its behavior near the unchanged mark this week will be one more indication of risk appetite among fund managers in the U.S.