Published October 13, 2017
The stock market continued its happiness this week rising to further new highs. This bullishness is certainly rewarding to our subscribers as well as, frankly, anyone fortunate enough to have chosen to invest in the Nasdaq late last year. The market has so far this year seen almost no pullback whatsoever – indeed it’s the most straight-up market in decades as well as one with historically low volatility.
This non-stop rise in stocks has been driven by a relative handful of stocks however. The top five tech/consumer stocks, those that power the Nasdaq, account for almost one-third of the S&P 500’s entire gain this year. That’s 5 stocks out of 500 responsible for a huge chunk of the gain.
Apple, Microsoft, Amazon, Facebook, and Alphabet (Google) AVERAGE a +35% gain so far this year. Of course, these are huge companies whose stock prices were already sporting massive gains, which makes these additional gains seem all the more impressive.
The unceasing rise of the Nasdaq has pushed the index this week to overbought levels not seen since 2003 (which was the beginning of a prior bullish run, not the end we will note).
Chart 1: Nasdaq high-low index hits extreme levels
On a shorter-term basis, the percent of Nasdaq stocks above their 50-day moving averages has spiked to a point consistent with short-term market peaks.
Chart 2: Nasdaq metric spikes to extreme level
All of this leads us to the conclusion that buying the Nasdaq at this moment is likely not your best bet. A better entry point should be coming up to participate in this very strong market.
Market update
Since an early August swoon, stocks have ripped off almost eight straight weeks of gains. Monday was typical of what a backstep looks like, only -0.2% on mixed news and no real selling pressure. Tuesday gained that amount back largely on comments from Wal-Mart (WMT) that they will grow their online business by +40% and buy back a mountain worth of stock. The +4.5% surge in the stock pushed the Dow Industrials up +0.3%. Stocks added another +0.2% Wednesday as Fed minutes offered nothing new and semiconductor stocks continued a hefty bullish run, up 11 consecutive sessions. Stocks gave back the -0.2% Thursday with bank earnings failing to provide new fuel to the rally. Another flat session Friday with inflation numbers a bit lower than expected and bank earnings mixed.
Another positive week for stocks saw the S&P 500 higher by +0.23% while the Nasdaq 100 (QQQ) added +0.46%. the small-cap Russell 2000 (IWM) slipped -0.45% after a blistering move higher over the prior few weeks.
Warm wishes and until next week.