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Nasdaq: From Laggard To Leader

Summary

The Nasdaq 100 Index has finally breached its highs made in March 2000 during the Dot Com Bubble.

Despite lagging the Dow and S&P-500 for the second quarter, the Nasdaq is now the performance leader.

Several of past laggards are in the Index have now begun fresh new up-trends.

It had been a long lost decade and a half for investors in the Nasdaq (NASDAQ:QQQ). The Nasdaq posted a high of 4816.35 during the Dot Com Bubble and for 16 years the market could not get back to this level. In comparison, the S&P-500 (NYSEARCA:SPY) made an all-time high of 1552 in March of 2000, but the market blasted through that resistance in March of 2013. Since the S&P-500 SPY sits 35% above its highs made during the Dot Com Bubble, while the Nasdaq just took them out last month. All-time highs are not something to be scared of. The market is sending a loud and clear message to you that an expansion of the previous range is underway.

Source: Freestockcharts.com

Despite the Nasdaq QQQ trading below its 2015 highs until just last month, a few Nasdaq components were able to buck the trend. Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) have had clear uptrends in place since 2015, and have been two spots where investors could hide out while the Nasdaq remained in a range between 3600 and 4700. Unfortunately for investors in the Index, the largest weight stock Apple (NASDAQ:AAPL) and several others have been holding the Index back. In 2015 as AAPL began a new downtrend, it was hard for me to imagine the Nasdaq going to new highs any time soon. Strong leadership and participation from the majority of an index is the fuel a market needs to begin a sustainable move to all-time highs. While this leadership and participation was absent in 2015, it looks to be very alive as we enter the fourth quarter of 2016.

Nasdaq 100 Weightings

While Amazon AMZN and Facebook FB bucked the Nasdaq's trend through 2015 and 2016, their weight was simply not enough to make a difference. The two companies have a cumulative weighting of roughly 12% which is simply not enough influence to rescue an index with only their weight. Amazon and Facebook barely make up the weight of Apple alone which significantly dilutes their performance on an index weighted basis. Looking at the below table, what is needed to really sustain a move through all-time highs is participation from the majority of the largest weighted Nasdaq components. The top 5 spots on the Nasdaq 100 Index are held by Apple AAPL, Microsoft (NASDAQ:MSFT), Amazon AMZN, Facebook FB and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). These 5 companies from a weighting standpoint make up over 35% of the Index and it is imperative they are all participating in the rally. For the first time in nearly a year, all of these companies are trading above all of their key moving averages. The culprit here is our leader Apple, which until August has not been able to gain any traction over its 200-day moving average.

Moving to the top 10 weighted companies, we can add Alphabet (GOOGL), Intel (NASDAQ:INTC), Comcast (NASDAQ:CMCSA), Cisco (NASDAQ:CSCO) and Amgen (NASDAQ:AMGN). These 5 companies make up another 15% of the Nasdaq 100, putting the top 10 Nasdaq 100 companies at over a 50% weighting on the whole index. While these 5 companies were not hurting the index like Apple, they did not fall far from the tree either. Intel, Comcast, Cisco and Amgen were all stuck in ranges for the past year and were unable to gain any traction above their 2015 highs. What has changed in the past 3 months is that all of these stocks have now broken out of their ranges and are making new highs. This is a massive development for the Nasdaq 100 as we have 50% of the index having broken out and trading above their key moving averages. We have not seen this type of participation in over a year and the most important constituent Apple, is now finally on board.

A Technical Look At The Nasdaq 100 Top 10 Holdings

To better illustrate what I have discussed in the above paragraphs I have included charts of the new uptrends we are seeing in the Nasdaq 100's top 10 holdings. I will begin with the highest weighting companies and end with the lowest. The 200-day moving average is my line in the sand for bull and bear markets. Due to this I look for consecutive closes above this level to signal the beginning of new bull markets. I am also looking for higher lows and higher highs, but my main barometer to judge a bull and bear market is its relationship with the 200-day moving average.

Apple

As we can see from the chart below, Apple AAPL investors have not had an easy 12 months. Every rally during this downtrend has been met by a barrage of sellers at the 200-day moving average (yellow line). What looked like a breakout finally in April was met with a waterfall decline to new lows for the stock. Since the stock is looking much more constructive and has broken out with conviction above its 200-day moving average. This new uptrend was nearly extinguished by earnings earlier this month, but the stock found...


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