Nasdaq100 Posts a Solid Gain, but Underperformance by the Semiconductor Sector a Short-term Negative

While the Nasdaq100 (NDX) settled up over 2% Tuesday at 1871, it’s interesting
to note that the influential semiconductor sector clearly underperformed, with
the Philadelphia Semiconductor Index (SOX) closing up only 0.9%. The SOX is
one of the more volatile indexes out there, and typically when tech stocks
rally, the SOX will outperform the Nasdaq or at least trade up a similar
amount. When it fails to rally alongside the Nasdaq, it signals a potential
problem. In the table below I’ve listed every case since 2000 in which both
the NDX and SOX closed up at least 0.5%, but the NDX more than doubled the
gain of the SOX (as occurred today.) Note that in 14 out of 17 instances the
Nasdaq closed at a lower level two sessions later. Even when the Nasdaq
managed to continue moving higher, gains amounted to 0.5% or less in every
case but one, suggesting limited upside potential as we head into Thursday’s
close…

NDX & SOX +0.5% or more & NDX Doubles SOX Gain
07/08/08… Nasdaq ??? two days later
10/05/07… Nasdaq +1.0% two days later (*)
08/24/07… Nasdaq -3.2% two days later
02/27/06… Nasdaq -0.1% two days later
04/25/05… Nasdaq -0.9% two days later
10/18/04… Nasdaq -0.3% two days later
07/27/04… Nasdaq +0.5% two days later
12/01/03… Nasdaq -1.9% two days later
09/18/03… Nasdaq -2.4% two days later
03/25/03… Nasdaq -0.4% two days later
04/08/02… Nasdaq -2.1% two days later
05/02/01… Nasdaq -2.0% two days later
05/01/01… Nasdaq -2.2% two days later
03/27/01… Nasdaq -9.9% two days later
01/23/01… Nasdaq -4.9% two days later
08/24/00… Nasdaq +0.1% two days later
06/30/00… Nasdaq -3.0% two days later
05/05/00… Nasdaq -6.6% two days later

TICKscore settled at +26, its first positive reading in three weeks and the
highest one-day reading since February. Cumulative TICK settled at +42,500.
Big board volume ticked higher for a second day in a row as just over 1.7
billion shares traded hands. Tuesday also represented the second consecutive
day of ‘higher highs’ for the S&P500. Keep an eye on Wednesday’s volume, as a
third day of higher highs on increasing volume would trigger a three-day buy
setup.

The New High-Low Index is calculated by dividing the number of new 52-week
highs on the NYSE by the sum of (new 52-week highs + new 52-week lows). This
ratio is then smoothed with a 10-day moving average (seen in red on the
charts). When it hits unusually low levels, as it did Tuesday when it closed
under 10%, it’s been a good indication of generally higher prices over the
next three months. The last thirty occurrences are listed in the table
below…

New Highs-Lows Index Ratio Down to 10%
07/08/08… S&P500 ??? three months later
11/21/07… S&P500 -4.0% three months later
08/06/07… S&P500 +4.3% three months later
10/19/05… S&P500 +7.3% three months later
07/24/02… S&P500 +4.3% three months later
09/27/01… S&P500 +12.4% three months later
10/21/99… S&P500 +13.4% three months later
08/28/98… S&P500 +15.7% three months later
08/04/98… S&P500 -0.4% three months later
11/22/94… S&P500 +7.1% three months later
08/15/90… S&P500 -9.5% three months later
05/01/90… S&P500 +7.1% three months later
01/30/90… S&P500 +3.1% three months later
10/20/87… S&P500 +6.4% three months later
07/18/84… S&P500 +7.5% three months later
05/25/84… S&P500 +10.7% three months later
02/16/84… S&P500 +0.9% three months later
08/10/82… S&P500 +38.9% three months later
06/04/82… S&P500 +6.9% three months later
03/17/82… S&P500 +2.0% three months later
02/22/82… S&P500 +3.8% three months later
01/22/82… S&P500 +0.1% three months later
08/31/81… S&P500 +0.6% three months later
03/05/80… S&P500 +0.1% three months later
10/19/79… S&P500 +9.3% three months later
12/28/78… S&P500 +4.9% three months later
10/30/78… S&P500 +6.5% three months later
10/25/77… S&P500 -1.2% three months later
11/25/74… S&P500 +20.0% three months later
08/02/74… S&P500 -10.8% three months later
06/25/74… S&P500 -21.2% three months later

While this setup struggled in the 70′s, it’s performed well over the last
thirty years. This adds to the intermediate-term positive setups already on
the board, most of which will remain in play until later this month.

Categories : Archived EOD Commentary, End-of-Day Commentary

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