S&P 500 Rallies To New High Last Thu; Tech’s Participation Should Help Build On Momentum

Time will tell if this optimism pans out. Right here and now, however, longs can hang their bullish hat on the prevailing positive revision trend.

Near-term, last week’s breakout on the S&P 500 raises the odds that bulls will continue to carry the momentum. All the better if tech joins in. The Nasdaq 100, after remaining under the 50-day for a month, reclaimed the average last Thursday. But the tech-heavy index has been on the back foot for a while now. On a relative basis, growth began to lag value last November.

Particularly worrisome are three successive monthly candles. January produced a long-legged doji, followed by a shooting star in February and then by a dragonfly doji in March (Chart 6). This preceded a 105-percent surge from the low of last March. Bulls are sitting on tons of paper gains and it will not be uncommon for them to want to lock them in – at least some. These three candles could be telling us that things are evolving this way. March’s dragonfly doji shows sellers were aggressive but that the buyers were able to absorb all the selling. But the important thing to remember here is that selling picked up speed. This is a medium- to long-term worry.

Near term, from its all-time high of 13879.77 on February 16 through 12208.39 on March 5, the Nasdaq 100 (13329.51) shed 12 percent. It then put in a higher low on the 25. Last Thursday’s action, therefore, is encouraging in that bulls can at least hope to fill a gap from February 22, at 13540s.

Tech’s participation obviously will help the S&P 500. The sector wields too big of an impact on market cap-weighted indices such as the S&P 500. The top five companies in the index – Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL) and Facebook (FB) account for nearly 21 percent. Those same companies have a nearly 40 percent weight in the Nasdaq 100.

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