The NASDAQ 100 is still trading near its all-time high, but relative weakness in leading stocks may be hinting at a possible tech correction around the corner. Here’s our simple and quick analysis to help you prepare for the market’s next move.
The NASDAQ Composite, NASDAQ 100, and S&P 500 indices remain near their highs, but recent price action “under the hood” may be cause for concern.
Out of the roughly 120 leadership stocks on our daily watchlist, 41 stocks were down 3% or more yesterday (July 14).
Leadership has narrowed to just a few big cap tech stocks pushing higher, which is not a positive sign for the current rally.
The daily chart below shows the NASDAQ Composite on top, and the percentage of stocks trading above their 40-day moving averages on the bottom section:
The percentage of stocks trading above their 40-day moving averages (~35%) is near a level that we normally associate with a significant pullback in the market–BUT the NASDAQ is at its high.
That’s quite a bit of (bearish) divergence!
In the July 14 swing trading report, we tightened stops to reduce risk, and even proactively sold a few stocks ahead of their stops per intraday alert on Wednesday morning.
We closed most of our open positions for a scratch or small loss, while locking in a +20% gain on NVIDIA (NASDAQ:NVDA).
There are two open positions remaining in the Model Portfolio and both have a stop just beneath Wednesday’s low.
We’ve found that sometimes it’s best to shoot first and ask questions later when open positions fail to move out as expected.
Currently, we are proactively scanning for re-entry when market conditions change.
Being prepared is the key to success in the market.
Remember that we can always re-enter if/when market conditions improve and new setups emerge.
Given the ugly price action in growth and small caps recently, as well as the extended charts of SPY and QQQ, we are happy to protect recent profits by sitting on the sidelines, mostly in cash.
Author’s Note: The commentary below appeared in the July 15, 2021 issue of The Wagner Daily stock trading report. The Watchlist and Model Portfolio section of the report is restricted to paid subscribers.