With the economy strengthening, money continues to flow into economically sensitive stocks at the expense of growth and technology-based names. U.S. stocks are off to another split-market start to the week. The Dow Jones Industrial Average (INDU) is down 0.10%, and the S&P 500 Index (SPX) fell 1.04%. The technology-laden Nasdaq Composite Index (COMPQ) and the mega-cap technology Nasdaq 100 Index (NDX) continue to lag their peers, declining 2.55% and 2.63%, respectively.
In the past month, investors and traders continue to favor commodities-based sectors such as Energy (XLE – 11.33% past 1-month) and Materials (XLB – 9.28%) as well as interest rate-sensitive sectors like Financials (XLF – 7.40%) and Real Estate (XLRE – 5.50%). Industrials (XLI – 4.91%) round out S&P sectors in leadership roles over the past month. The SCTR ranking of the S&P 500 sectors also reaffirms 1-month leaderships concentrated in XLE (SCTR score of 98.4), XLF (94.7), XLB (85.4), XLI (82.7), and XLRE (67.8).
Although one month does not make a trend, the selling pressure on the S&P 500 Index five biggest market-cap-weighted names – AAPL (-2.58% today), MSFT (-2.09%), AMZN (-3.07%), GOOGL (-2.56%), and FB (-4.11%) may be a warning of further Big Tech's weakness into the summer months. Talks of Biden's plans to raise corporate and capital gains tax rates and higher inflation/interest rates in the months ahead may be another catalyst to weaken FAAMG and other high-growth names.
On the technical side, the Nasdaq Composite (COMPQ – 13,401.86) is close to confirming a breakdown of two near-term supports, including the 50-day ma (13,533.79) and the 4/5/21 gap-up breakout (13,601-13,621). Failure to maintain these near-term supports coupled with two gap downs on 5/4/21 (13,795.57-13,881.54) and 5/10/21 (13,687.93-13,690.75) further reaffirms short-term selling pressure. The spread (1,009.66) between the 50-day ma (13,533.79) and 200-day ma (12,424.13) also remains wide. The failure of COMPQ to maintain above the flat 50-day may lead to a contraction of the two key moving averages. Since the spread is too far apart, will a COMPQ price correction help to alleviate an overbought condition?
On more of a positive note, the Nasdaq 100 Index (NDX – 13,359.08) seems to be stronger than COMPQ, as it is testing the 50-day ma (13,374.47) and 4/1/21 gap-up breakout (13,297.5-13,302). However, like COMPQ, there are gap-downs on 5/4/21 (13,705.38-13,784.66) and 5/10/21 (13,648.49-13,669.78). A convincing surge above these near-term overhead resistances would be technically constructive. The 200-day ma, currently rising at 12,424.79, remains crucial intermediate-term support. Will NDX maintain its 50-day ma? If not, will NDX quickly fall toward its 200-day ma? Consolidation may not be a bad thing, as this will help alleviate an overbought condition, allowing for the resumption of its primary uptrend.