Technology is Starting to Lag
In my article, Tracking Technology versus the S&P 500 I point out that technology, as measured by the NASDAQ 100 Index, will at times lead the direction of the equity markets, I showed a number of charts where tracking the ration of the NADAQ 100 to the S&P 500 gave you an early warning to a trend change. That warning could be months away, but it is something I focus on.
I track the ratio using the 14-bar RSI. That is, I run the RSI against the NQC5/SPC5 ratio. If I see the 14 bar RSI closing with peaks above 62, then I consider that a positive sign for the equity markets. If I see peaks on the RSI below 62, but above 50, then that is trading range behavior with a bullish bias as long as the RSI does not close below 38. If the RSI closes below 38, then that is bearish momentum, and I look for the equity markets to move lower.
This concept isn’t the “holy grail.” For example, the S&P 500 bottomed ahead of the NASDAQ 100 this past summer, I believe because of the money flowing into energy, such as Exxon. At the moment, Exxon, is the top holding in the S&P 500 based on net assets coming in at 3.42%.
Checking the CQG Analog charts, which is an overlay chart, we see the ratio (line chart) and the RSI, the S&P 500 (the blue bars), the QQQQs (the red bars), and Exxon (the yellow bars). First, both the S&P 500 and Exxon made new highs, and are pulling back, but the QQQQs did not. Consequently, the ratio has started to stair stepped down.
The RSI of the ratio has formed a peak below 62, signaling a trading range. As long, as the RSI forms pivot lows with the low point above 38, then I would consider the trading range environment is intact. However, if the RSI of the ratio closes below 38, then I would view the equity markets as likely to move down. If the RSI closes back above 62, then the up trend status is back in place.