Tech stocks are devouring the market. As noted by Reuters:
"The combined value of the S&P 500’s five biggest companies - Apple Inc (AAPL), Amazon.com Inc (AMZN), Microsoft Corp (MSFT), Facebook Inc (FB) and Google parent Alphabet Inc (GOOGL) - now stands at more than $7 trillion, accounting for almost 25% of the index’s market capitalization. That compares with less than 20% pre-pandemic."
While the few extremely large stocks are driving the indexes, other tech stocks' nonstop rally has pushed almost a quarter of the NASDAQ 100's members to overbought levels. Granted, the last time this happened (during this 5 month rally) was not an effective bearish sign at all. After a quick pullback, the index surged to new highs again.
Historical cases in which almost a quarter of the NASDAQ 100's members were overbought were slightly more bearish than average over the next month. But beyond that, strong momentum usually led to more gains over the next 6 months.
This is an abridged version of our recent reports and notes. For immediate access with no obligation, sign up for a 30-day free trial now.
We also looked at:
- Table showing all historical signals of more than a quarter of NDX stocks being overbought
- What happened other times the S&P 500's 5-month pattern had a > 0.9 correlation to the past 5 months
The post titled Big tech is devouring the stock market was originally published as on SentimenTrader.com on 2020-08-31.
At SentimenTrader.com, our service is not focused on market timing per se, but rather risk management.
That may be a distinction without a difference, but it's how we approach the markets. We study signs that suggest it is time to raise or lower market exposure as a function of risk relative to probable reward. It is all about risk-adjusted expectations given existing evidence. Learn more about our service , research, models and indicators.
Follow us on Twitter for up to the minute analysis of market action.