Not to Be Cringey, but an Awful Lot of Stocks Are Down an Awful Lot
The NASDAQ 100 may be near new highs, but half of its constituents are down more than 20%. Let’s dig in to see what that means for the future.
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I saw a chart recently that had a title that made me cringe due to the wording, but not the substance. The wording stated that ‘nearly 50% of Nasdaq 100 stocks are in a bear market’.
The reason I cringe is because markets have bear markets, not individual stocks. I would have much preferred the headline to say something akin to: Nearly 50% of Nasdaq 100 stocks are down 20% or more.
Some may say that’s semantics, but let’s think about that statistic for a minute. It’s not even focused on the entire Nasdaq Composite, which has thousands of stocks. It is based on the Nasdaq 100, which are the top 100 stocks. So nearly 50 of those stocks are down 20% or more. That’s a lot. Especially considering Nasdaq is mere pennies from its highs (despite the chop-fest we’ve seen since May).
This is one reason the indicators are so sloppy. My indicators are based on breadth, and the narrower the rally, the sloppier the indicators get. Just look at Tuesday’s action, where Nasdaq gained 233 points, but only 57% of the volume was on the upside. You can thank NVIDIA’s rally for that.
But back to the statistic. That is also why we are on the verge of seeing the ‘what if’ for the Nasdaq McClellan Summation Index so close to getting oversold (see yesterday’s missive for a fuller comment and chart on this indicator). It is also why the Volume Indicator, which measures upside volume as a percentage of total volume, sits at 49%, with an oversold condition at 47%. There are an awful lot of stocks that are down and down by a lot.
This statistic is also why you see the Nasdaq Overbought/Oversold Oscillator not even uptick this week, despite the Tuesday rally. And why it is back under the zero line (heading toward an oversold condition).
It is also why I want to see a decent whack in the market. I want to see the VIX get jumpy. I want to see the market get to a decent oversold condition. There are enough names that are down so much that if we can get the setup, we should get a decent rally.
It’s why I want us to get out of this chop.
So what if the chop stays with us? I’ll admit that more than once I have gone back to glance at the market in the post 9/11 period because we had that terrific rally off the late September low. It petered out in early November, and then we went into a ten percent trading range for five or six months. Well, hey, at least we’re already two months into this sideways chop!
And for those who wonder, must the end of the chop finish by breaking to the downside? No. It all depends on the indicators and where they are. Right now, they are in the middle of nowhere.
