Even prior to March '09 bottom the NASDAQ Composite index, as a general trend, was performing better than the S&P 500 (see bottom panel). However this has not been the case for well over a year now. NASDAQ's relative performance versus the S&P 500 has been decidedly fading.
When love at the bottom of the capital structure is increasing, so too should we expect NASDAQ's relative performance versus the S&P 500 to objectively display this, as well. Yet in the lead up to the Fed's infinite QE, hyperinflationary bailout policy, and only the more so subsequently, love at the bottom of the capital structure is seen narrowing. All manner of tricks gatekeepers have deployed to exploit a broken price discovery mechanism—a matter of circumstance exposed by persistently fading volume—now fail general conditions otherwise necessary to sustain the market's rising trend. NASDAQ's relative lag versus the S&P 500 reveals a market at heightened risk of coming undone.
In fact we might expect considerable selling pressure sometime in the not-too-distant future. The lead up to the market's August 2011 swoon saw love fade similarly, NASDAQ vs. the S&P 500, as the market pushed higher into its peak earlier that year. At present, however, we are seeing a much more pronounced fade as the overall market pushes still higher. The Jetson's dog, Astro, probably said it best: Rutro Relroy. The dogs who today salivate for a bull market their bark suggests will persist for as far as the eye can see evidently got some splanin' to do...
* * * * *© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.
Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.
Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.
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