August 3, 2009

S&P 500 vs NASDAQ 100

The weekly bar chart above demonstrates the leading and lagging nature of the S&P 500 (black bars, plotted against the right hand scale) and NASDAQ 100 (orange bars, plotted against the left hand scale) indices. Plotted in red and blue, the 50 and 200 period moving averages (respectively) are plotted (solid for the S&P 500, dashed for the NASDAQ 100). A Fibonnaci grid (in purple) is drawn from the market high in Oct 07 to the market low in Mar 09. Additionally, the breakout points whereupon both markets broke above, then below, their 200 period moving averages is demarked by vertical dashed lines (black for the S&P 500, orange for the NASDAQ 100), with circles at their occurence.

Note that during the last cyclical bull market of 03 - 07, the S&P 500 led the way upward. Again, during the sell off of 08, it was the S&P 500 showing the path forward. This occurred not only using the 200 period moving average, but the 50 period moving average as well. The current cyclical bull market, however long it may last, is demonstrating different behavior, with the NASDAQ 100 breaking back above its 50 period moving average several weeks before the S&P 500 followed suit. The advance is so great in the tech heavy NASDAQ 100 that there is a mere 88.33 market points to climb before reaching its 200 period moving average at 1,691.69. The S&P 500, however, is a full 269.65 market points below its respective 200 period moving average.

That value in S&P 500 points represents a staggering 27% of its current value, compared to only little more than 5% of the corresponding NASDAQ 100 value of 88.33 to break the next barrier. Perhaps most revealing is that the NASDAQ 100 has clearly broken through its 38% retracement value (peak to trough), whereas the S&P 500 is just approaching its corresponding retracement value.

Whatever the outcome of the current cyclical bull phase, technicians should watch the tech heavy NASDAQ 100 for clues as it approaches 1,691.69. This entire advance has been largely marked by a flight to technology names, and the jury is still out on the broader market.

Jeffery E. Lay, CMT
President
Talon Eight, LLC

Disclaimer: This post is intended solely to disseminate information, and is not, and shall not be construed to constitute financial, investment or other similar advice. All posted material should be independently verified for accuracy and current applicability. Readers of this post are referred to the Risk Disclosure for further information.

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