EDITOR NOTE: Since the beginning of the last bull market in March 2009, the Dow has returned around 265%, the S&P 500 has risen 341%, and the tech-heavy Nasdaq 100 has skyrocketed an astounding 1,028%! Tech has been in the lead for nearly two decades. But as we saw in the 1990s leading to the 2000 tech bubble burst, there has to be “real earnings” backing up the valuations. The likelihood of sustaining high earnings at a time when society is being ravaged by a pandemic, where nearly 13 million people remain unemployed, where almost a million new unemployed join the ranks each week, where thousands of businesses in need of stimulus are on the verge of bankruptcy, and hyperinflation is just around the corner--all of this makes it clear that the markets, particularly the tech sector, is gravely disconnected from the economy. And with that realization alone, we can see how the 2021 stock market isn’t all that different from 2000. The difference is--after the impending crash, we’ve got years of high inflation or hyperinflation to contend with.
Since the 2000 tech bubble and crash, tech stocks have regained their leadership form. Especially large-cap tech stocks.
Headlines have varied in focus from the “4 horseman” to “FANG” and “FANGE”, but one thing remains: Large-cap tech stocks have been the bull market leader.
So what about when large-cap tech lags the market? Not so good.
In today’s chart, we look at a “monthly” chart of the performance ratio of the Nasdaq 100 Index to the Nasdaq Composite. It’s basically a look at how large-cap tech stocks perform against the broader tech stocks world.
As you can see, this ratio peaked out in 2000, bottomed in 2002, and has been in an up-trend ever since. That up-trend has been formed with higher lows, creating a trend line that has yet to be broken.
Are Tech Stocks About To Head Lower?
Last summer, large-cap tech’s out-performance pushed this ratio back to its 2000 high at (1) before turning lower. That turn lower has turned into several months of under-performance and has the ratio testing its bullish trend line support at (2).
How large-cap tech stocks fare here will be important, as solid trend support is at hand!!! As a market leader, a breakdown in large-cap tech stocks would be very bearish for bulls. Stay tuned!
Originally posted on Kimble Charting Solutions