Another Not-So-Kudlow-esque Chart Fest ~ The Risk Averse Alert

Thursday, May 15, 2008

Another Not-So-Kudlow-esque Chart Fest

Browsing through today's Article Digest from Minyanville I came across an article by Jason Goepfert titled, "Tech Rushes In." The article's blurb reads as follows:

"Over the past few weeks, technology stocks have taken a clear leadership role. That's a positive thing, as stocks in general tend to do better when high-beta sectors like technology are doing better than more-defensive sectors."

I stopped reading right there. I thought it was going to be a Kudlow-esque pompom party cheering on Goldilocks. (Turns out I was wrong; more on this later.)

It got me thinking, though... I have been aware of NASDAQ's leadership for a long time now. Trouble is the past ten years reveals this clearly is a double-edged sword. The leadership works in both directions.

NASDAQ weekly

Believe it or not, even since the '02 bottom the NASDAQ has continued to lead. Not to confuse you, but take a look...

NYSE weekly

I know. You're thinking... WHAT! Are you high, Elliott Wave Guy?

It's all about percentages, grasshopper. The NASDAQ Composite (bottom to top) has risen a greater percentage than the NYSE Composite since the '02 low. So there.

Now, since we are looking at these two charts, I also thought it would be appropriate to highlight the RSI situation. It, too, it appears, is presenting additional evidence backing a conclusion I shouted yesterday...

All things point to the stock market being very near an important top.

But let's get back to this high-beta leadership thing. It was really bugging me today.

NYSE 5-min

You will recall this week's price-RSI performance led me to suggest yesterday "the NYSE Composite ... has farther to rise." This was out of regard for the likelihood the stock market's imminent meltdown was being delayed some days. So, today we got confirmation. The NYSE Composite joined the NASDAQ Composite at a new, post-3.17.08 high.


NASDAQ 5-min

Jason Goepfert's observation that, "over the past few weeks, technology stocks have taken a clear leadership role" is readily apparent just looking at this week's performance. You can see the NASDAQ Composite has risen considerably above its high set on Wednesday, 5.9.08, whereas the NYSE Composite is, relatively speaking, eating the NASDAQ's dust. Even today, in fact, the NASDAQ Composite outperformed the NYSE (now, you might not readily see this comparing the above two charts, but remember, it's all about percentages).


Here I am yesterday shooting my mouth off saying, "I am not at all concerned. Chances I am wrong and the stock market's melt-up is ... at hand are very, very slim."

For crying out loud ... while today's last half-hour mini-melt-up was unfolding I am thinking to myself, "Yeah, nice call Sherlock!"

So, after the market closed I took a closer look at this NASDAQ leadership conundrum. Is it really significant? Could it possibly be signaling the stock market is about to melt up?

Or is it, instead, the very ingredient we should expect to produce the "deer in the headlights" effect ... just as the freight train comes barreling around the corner?


Look how far the NASDAQ Composite had risen beyond its July '07 top when it peaked in October '07 ... and compare this to the NYSE Composite's performance:


No doubt, the high-beta NASDAQ was leading the charge going into the early October '07 top. Even following its subsequent setback, the NASDAQ managed to climb to a still higher peak on the first day of trading in November '07. However, the NYSE Composite was at the same time falling short of its early October '07 peak.

So, even at the very top during last year's 4th quarter, the NASDAQ Composite was demonstrating a greater measure of underlying strength than was the NYSE Composite.

And yet, the stock market still fell apart.

Notice, too, how the NASDAQ Composite's volume was increasing throughout its advance August - October '07 — now, that is the so-called "wall of worry" the stock market is said to climb!

And yet, it all still came unglued.

Moving forward to the present ... you can see, too, how the NASDAQ Composite has been leading the way higher since the March 17, 2008 bottom ... particularly over the past few weeks, just as Jason Goepfert noted.

So, then, is the stock market still slated to melt down?

Ha! What does it say there ... over to the left ... just under the Zepp video?

Oh yeah, the trend is your friend.

You might want to check out "Tech Rushes In." You'll find another piece of evidence suggesting the stock market probably is near a turning point.

Just a heads up... You might hear from me via e-mail tomorrow. We might want to position ourselves for a Monday morning meltdown ... that is if all the planets and stars align properly. I'll know after I check in with Arch Crawford (just kidding!).

(Is he still alive? I haven't seen him on CNBC for quite some time. You know the credit crisis is serious when the masters of spin won't let Astro appear. As if GE's surprise announcement yesterday that it is auctioning off its appliances unit doesn't say everything we need to know about how deep is the credit crisis at GE Capital ... which news, by the way, barely got a mention today ... GO FIGURE!)

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