Nasdaq Lagging

 The momentum trade in the Nasdaq big cap names is starting to unravel.  Nothing huge yet, but the Nasdaq Composite continues to trade heavy compared to the SPX and especially compared to the Russell 2000.  The Russell 2000 is really a side show, its importance is overstated.  Breadth is useful in some cases, but only at truly extreme levels, either good or bad.  The SPX has been able to do fine with weak breadth all year, so its not something that really drives any trading decisions.  

What matters are the big boys, the big 5.  MSFT, AAPL, AMZN, GOOG, FB.  They are the key to the long term direction of the SPX.  Those are the most popular stocks among both hedge funds and retail, so they are a pure read on the sentiment of the market. 

 The weakness over the last 3 days sticks out because if you remember, AMZN, AAPL, and FB had "blockbuster" earnings in late July, all on the same day, and investors were extremely excited about those stocks.  Yesterday, we revisited those post-earnings levels in the NDX, even as the SPX was near all time highs.  

The big cap tech names trade like they are overowned, and totally saturated with buyers.  Those who want to get into those stocks have already gotten in, or won't get in unless they trade much lower.  There definitely doesn't seem like there are too many eager Nasdaq buyers on just a 2-3% correction.  

Since the uptrend has lasted for so long, almost 5 months, there definitely will be some buyers on dips, but eventually, when all those dip buyers have gotten their full allocation of big cap tech, especially, then we can go down in earnest and test some of the important levels below, SPX 3200, 3130, and 3000.  

Another bearish thing that happened over the past 3 days is both gold and bonds finally having steep selloffs, something that was a warning sign in early June, which led to a sharp pullback.  And whenever popular trades like gold and silver suddenly go parabolic and then selloff sharply, its a sign of rampant speculation driving prices too high compared to the fundamentals.  That kind of mindset flows over to the stock market.  

It is without a doubt bubble behavior using the rationale that the Fed is pumping tons of liquidity into the market and lifting all boats.  That belief is so hard wired into investors' heads that its become a self fulfilling prophecy.  The herd can drive a trend to extremes until the forces of supply and demand correct that trend.  This year, you are seeing stock buybacks drastically cut and equity issuance increase at the same time.  If prices stay high while earnings don't grow, corporations will likely try to take advantage by issuing more stock.  

Bottom line, the leaders that have driven the market higher since the March bottom are starting to show signs of buyer saturation, and you are seeing rampant speculative blowoff tops in gold and silver.  Piece by piece, you are getting closer to that exquisite moment where the market tops out and the trend changes violently.  We are almost there, but the bulls won't rollover easily.  They will fight it until the selling forces overwhelm them.  It may take up to 2 weeks before we get that change of trend, but the time bomb is ticking and it can go off any day now.