Tech May Be All That's Left to Love

 | Apr 06, 2017 | 6:00 AM EDT
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Will Wednesday's action get everyone so negative that sentiment will change in a heartbeat? If there is follow-through on the downside, I would say yes. I mean, we were already seeing sentiment turn earlier this week, weren't we?

I would like to take a step back for a minute and point out some things that I have discussed on a regular basis for several weeks or longer. First, let's discuss the number of stocks making new highs. This has been contracting since mid-December. It hasn't improved in four months. Perhaps that's because the Russell 2000 is trading where it was on Dec. 6. As I noted in Monday's column, these are supposed to be the best six months of the year for the Russell 2000, and with the exception of the four or five weeks after the election, the Russell has been dead money.

This makes it harder to make money, and I don't just mean on the long side; on the short side as well. It has also drawn out the pattern of a head-and-shoulders top for this index. A break of the neckline is at 1340-ish.

I think by now everyone sees this, so I want to point your attention to another area. Technology, or more specifically, Nasdaq. This is an index where I have been harping about the statistics for weeks. The new highs are contracting despite higher highs in the index. And now the number of stocks making new lows has expanded as well. Thursday saw 66 new lows. Two weeks ago, when Nasdaq was 100 points lower, this index had 86 new lows. So ask yourself, if Nasdaq falls another 100 points, do you think there will be more than 86 new lows? The answer is probably.

It seems to me that we lost the small-caps. We lost the transports. We lost the financials. We lost the industrials. We surely don't have retail, and for all the attempts at rallying in energy, it too has been a disappointment. Thus the narrowness has left us with a tech lovefest.

Even where volume is concerned, the McClellan Summation Index for Nasdaq has rolled back over. I use volume for this, so it will now take a net differential of +1 billion shares (up minus down volume) to turn it back up. Keep in mind, this index just made a new high this week. It should not be this weak underneath, yet it is.

This is why I keep focusing on the chart of the SOX, which did break that uptrend line on Wednesday. At this point, folks might not get terribly bearish on the semis because there is no lower low. But they have not been playing along with the Fab Five Favorites on Nasdaq of late. So if we ever get any selling in beloved technology, I say the SOX is where we will see it first.

Note: I am taking a few days off. My next column will be Tuesday.

For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.

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