The Nasdaq is Now Leading

The Nasdaq is Now Leading

Posted on April 05, 2022
The S&P 500 market index is in an interesting place right now.  After falling to relative lows in early March, the index rallied up 14% over the course of 13 days. As a matter of fact, the index rallied above its 200-day and 50-day moving averages. 

Looking at some technical indicators, it appears that the S&P 500 is now 99% overbought according to AIQ Technical System’s unconfirmed buy/sell rating.  It is rare to see this leading indicator get into extremely overbought territory.  A little momentum in the wrong direction, and it could spur another meaningful pullback or correction.

What has led this rally?  Primarily, the Nasdaq and those technology-related stocks.  Over the last 2 weeks, the Nasdaq has outperformed the S&P 500 on a relative basis.  Although the market is overbought, the Nasdaq leading for two weeks, or more, is a bullish indicator.  Given the Nasdaq’s impact on the S&P 500, any correction should be limited until those conditions change.

Given the two conflicting indicators above, the market being extremely overbought with the Nasdaq leading, the best analogy we can think of for today’s market is that it’s like “having a pile of wood with gasoline on it.  All you need is a match, but right now, you don’t have one.”

From a technical perspective, the Nasdaq 100 (those technology-related stocks) is leading the markets, but the index has bounced down off its 200-day moving average.  Moving averages can often behave as points of resistance.

Source: Canterbury Investment Management using Optuma Technical Analysis Software

You can see in the chart above, the Nasdaq 100 rallied to the 200-day moving average (blue line) before bouncing off last week and falling lower.  The moving average happens to have occurred at a peak from a few weeks back.

Bottom Line
It is about 50/50 as to which way the market will go from here.  The market is overbought but has not shown any major signs of wanting to go down.  The Nasdaq 100 is leading but could have some resistance at its 200-day moving average.  Even with its recent rally, the Nasdaq still has bearish market characteristics.  It will be interesting to see which way the market ends up going.

Currently, the top 5 US sectors remain defensive.  Utilities, Health Care, Basic Materials, and Consumer Staples are leading, with the S&P 500 index falling in line next.  That means that the technology-heavy sectors are closer to the bottom of the sector rankings.
Canterbury Investment Management: Tom Hardin

More About Tom Hardin

As Chief Investment Officer, Tom has more than 30 years of experience in the investment management industry and has a broad breadth of knowledge. He is known as an innovator, educator and has been revolutionary in the advancements of portfolio and risk management.

Canterbury Investment Management: Tom Hardin

More About Brandon Bischof

Brandon is directly responsible for managing the Canterbury Analytics Group (CAG). To date, Canterbury Analytics Group has played an important role in advancing portfolio management from a loose art form based on subjectivity and obsolete assumptions to an adaptive process with scientific rules and methods capable of providing evidence based results and statistically relevant value add results.

Every effort was used to provide accurate data and mathematical calculations to provide, what we believe to be, accurate results. Canterbury Investment Management, LLC, and its principal owners, make no guarantee of completeness or accuracy of data or calculations as well as conclusions of any statistical data or information contained in the simulation illustrated on this page. Past results or performance is in no way a guarantee of future results.