Stocks had a monster come back his week, but what is becoming clear is that fewer stocks are leading the charge, especially in the Nasdaq Composite.

Pixabay

The Nasdaq composite remains strong on an index level, but the percentage of stocks above their 50 and 200 day moving average is at 24% and 29%, respectively, very low levels. This tells us there are very few stocks participating in the Nasdaq rally.

Also, the cumulative look of the number of new highs minus new lows has rolled over with the number of stocks rising regularly. It has only happened during periods the overall index was moving lower.

The look for the stocks trading on the NYSE doesn’t seem as bad, but still, we see the cumulative New Highs minus New Lows has also started to roll over.

Also, there are signs of sentiment shifting from the more aggressive parts of the market to the safer parts. The XLU/XBI ratio shows that the XLU appears to be breaking out against the XBI, with utility outperformance over biotech only having begun.

Additionally, the Utilities have never underperformed Technology by this much ever. That means XLK is worth more relative to the XLU than even in the dot.com period.

Additionally, this chart shows a bullish divergence in the RSI has formed, which would suggest that utilities soon begin to outperform technology. On top of that, there is a falling wedge pattern, which also supports the bullish narrative for utilities. Of course, this doesn’t mean utilities rise; it could also mean they drop less.

S&P 500 (SPY)

The S&P 500 has a bearish divergence of its own, which formed, and I think we see lower prices in the days and weeks ahead.

Apple (AAPL)

Looking at Apple, we can see that the stock is currently very overbought and in a gamma squeeze. The stock should have some strong resistance around $181.25, and with an impulsive move higher nearly complete, I think the stock is likely to reverse back towards $145.

Alphabet (GOOGL)

Alphabet has a bearish divergence pattern with an RSI in decline as the stock increases. I could see this stock trading lower to around $2,500 by the middle of January.

Nvidia (NVDA)

What if Nvidia of today turns out to be nothing more than Cisco of 2000. It is an interesting question. The charts are stunningly similar going back to then and comparing to now. When you look at the following chart, ask yourself, and be honest. Would you be a buyer of Nvidia at these levels?

AMD (AMD)

Now another ironic stock is AMD. The AMD of today seems to be following the path of Intel in the late 1990s very closely as well. I find this to be amusing.

S&P 500 (SPY)

But then again, you can make the same case for the S&P 500 of today versus the S&P 500 of the late 1990s. The paths are just amazingly similar.

It isn’t just the price charts that copy each other. It is the PE ratio too. The PE ratio for the NTM, for the S&P 500 of 1998 and today, follow a similar path for today. In both cases, the past charts tell us we are on the other side now, and over the peak, and that we are now entering the phase of multiple compression.

Anyway, have a great weekend!

-Mike