Kicking 2026 Off With Nasdaq Losses. Does This Indicate a Shift in Trend?

The Market

The S&P is basically flat since I last wrote this newsletter. Well, okay, it is down fifty points. One would think that’s a whole-lotta-nothing, and mostly it was until Friday.

Was Friday’s move up in the 493 a big change, or was it just a thin trading day on the first day of the new year?

Everyone continues to watch the ratio of the RSP (equal weight) relative to the S&P (market cap weight). We’ve looked at this chart before, and as a pure chart, crossing that downtrend line and retesting it is a big positive. The relationship has been in a downtrend since last spring, so crossing the line represents a change in the relationship. After that, it’s hard to garner much. So, let’s just say that on balance, this ought to be a positive for the 493/RSP.

However, I am more interested in the ratio of the S&P to Nasdaq. Similar to the RSP/SPY ratio, it has been in a downtrend since last spring, but unlike that ratio, there is quite a flat line I can draw that is just overhead.

Let’s look at the longer-term chart of this particular ratio. We can see how tiny this little base is on a five-year chart, but take a look at last February (green arrow). That was well before tariffs were announced. The tiny little breakout over the blue line arrived in March (again, before tariffs were announced).

On the far left side of the chart, long-time readers might recall I fussed over this relationship as we entered 2022, drawing in that same line. Again, this time is much smaller than either of those other two, but the results tend to be the same: when the S&P is outperforming Nasdaq, the tech-heavy index tends to be in trouble.

If you are wondering about the longer-term equal weight to cap weight ratio, that’s just a long-term downtrend with the exception of the minor ‘breakout’ in 2022. So I would keep my eye on the S&P relative to Nasdaq for signs of a shift that has some legs.

Now, in the very short-term, Nasdaq has been red for five straight days, something it hasn’t done in a year. That too is a shift, but it also means Nasdaq will get short-term oversold in a matter of days.

And if you thought the fact that both the S&P and Nasdaq were down in the month of December (first down month after seven straight up months) would get sentiment to shift, you would be incorrect. Sentiment remains complacent.

New Ideas

I want to follow up on Alibaba (BABA) , which I have liked for about a month, and it has done nothing but drip lower—until Friday. But it still has not crossed that downtrend line, nor has it lifted itself up and over that 160-165 area. I think it will do it, but until it does, I’m going to use a stop under 145 now.

My other Chinese technology pick, Baidu (BIDU) , has done much better, but BABA needs to join the party.

Today’s Indicator

The new highs are still terrible. New lows aren’t great either. It’s been that way for months, though.

Q&A/Reader’s Feedback

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