Stocks managed to bounce back on Friday, with the S&P 500 climbing by around 80 bps and the NASDAQ Qs rising by just over 1%. Not much changed in our model, with the recent highs serving as a potential candidate for a correction zone for both the S&P 500 and the NASDAQ, based on the Elliott Wave and Fibonacci counts.
1. S&P 500
The overall trends for the S&P 500 still appeared weak, with the advance/decline line still well below its recent highs and really having traded flat over the past couple of months, a notable divergence from the index.
2. NASDAQ
But the more concerning look was the advance/decline for the NASDAQ Composite. That line had really broken down and diverged from the index. Something similar happened in the fall of 2018 and the winter of 2020, but the divergence was not this wide even then.
Additionally, there is a major difference; notice how the advance-decline of the composite made a lower high in July and then made a lower low in August, compared to the indexes higher high and higher low. A very notable divergence. This was a pattern reflected in the stocks mentioned lower in this post.
Also, notice how the number of stocks making new highs in the NASDAQ composite was trending lower after peaking in February and March.
But what seemed to be the most interesting was when you start looking at individual stocks and begin to see some very similar trends.
3. Nvidia
NVIDIA Corporation (NASDAQ:NVDA), for example, has been trading in a range since the beginning of July with no new high. Last week was key for Nvidia because the company reported results, but questions remained around the purchase of ARM Holdings (LON:ARM).
But more important was that the price of $210 was tough resistance, and the trends in momentum were not bullish. So the stock really needed to push above $210 last week to avoid a reversal and a potential triple top pattern.
4. PayPal
Notice how PayPal Holdings (NASDAQ:PYPL) was unable to make a new high too, has been really struggled recently and was sitting on support at $271. A break of support would set up a drop to $257 and probably $230.
5. Amazon
Amazon.com (NASDAQ:AMZN) was very weak and moved down sharply since reporting results. The stock fell through $3,300 and pushed down to $3,200. We will have to see here, but there was a strong chance this was heading lower still, to around $3,000.
6. Apple
I know Apple (NASDAQ:AAPL) technically made a new high recently, but really this stock has done nothing since January. Additionally, the RSI was trending lower, and the MACD was still very negative. So I continue to think this stock will move lower again, back towards $130.
7. Tesla
Also, since January, Tesla (NASDAQ:TSLA) hasn’t made a new high and was flirting with the $700 region, which will be the key dividing line going forward.
8. Facebook
Facebook (NASDAQ:FB) hasn’t made a new high since July, although the chart looked much better than a few others, and at least it had a positive trend. But still, it has not been part of this recent move up in the S&P 500 or NASDAQ.
Now, I mentioned these 6 stocks because they are among the top 10 holdings of the NASDAQ Composite and NASDAQ 100, and if they can’t push higher and make higher highs from here, then there is a problem.
Because we know the broader breadth based on the advance-decline line is weak and weakening, then the number of stocks left to lift the indexes will shrink further, calling into question just how much further the indexes can really climb.