Big tech is devouring the stock market

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), 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.

Nasdaq 100 stocks % overbought RSI > 70

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.

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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 on 2020-08-31.

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