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.

S&P 500 (SPY)

The overall trends still appear 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.

Nasdaq (COMP)

But the more concerning look is the advance/decline for the Nasdaq Composite. That line has 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 is a pattern that will be reflected in the stocks mentioned lower in this post.

Also, notice how the number of stocks making new highs in the Nasdaq composite is trending lower after peaked in February and March.

But what seems to be the most interesting is when you start looking at individual stocks and begin to see some very similar trends.

Nvidia (NVDA)

Nvidia, for example, has been trading in a range since the beginning of July with no new high. This week will be key for Nvidia because the company reported results, but questions remain around the purchase of ARM Holdings. But more important is that the price of $210 is tough resistance, and the trends in momentum are not bullish. So the stock really needs to push above $210 this week to avoid a reversal and a potential triple top pattern.

PayPal (PYPL)

Notice how PayPal was unable to make a new high too, has really struggled recently and is sitting on support at $271. A break of support sets up a drop to $257 and probably $230.

Amazon (AMZN)

Amazon has been very weak and has 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 is a strong chance this is heading lower still, to around $3,000.

Apple (AAPL)

I know Apple technically made a new high recently, but really this stock has done nothing since January. Additionally, the RSI is trending lower, and the MACD is still very negative. So I continue to think this stock will move lower again, back towards $130.

Tesla (TSLA)

Also, since January, Tesla hasn’t made a new high and is now flirting with the $700 region, which will be the key dividing line going forward.

Facebook (FB)

Facebook hasn’t made a new high since July, although the chart looks much better than a few others, and at least it has 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.

Mike