The divergence between the performance of the S&P 500 and the other 2 major indices is significant. Investors who may have become accustomed to the overall rise in equity prices from 2009 to 2019 may need to adjust their thinking. The way things were may be different the way things are now, based on the charts.
The S&P 500 has remained above the long-term up trend line that I mentioned in this blog post from February using the clarity of point-and-figure charting. This is not the case with either the NASDAQ Composite Index nor the Russell 2000 Index of small caps. Both of these broke through their up trend lines.
From a price chart analysis viewpoint, the powerful move upward is no longer being confirmed when these 2 stop keeping up. Let me show you what I mean.
The Standard and Poor’s 500 monthly point-and-figure looks like this:
Despite the extraordinary selling of the last few weeks, you can see that this index continues to trade well above that blue up trend line that dates back to 2009. The S&P has managed to stay above the previous support level at about 2350. That’s the spot at which buyers overcame significant dumping during the last big sell-off.
The NASDAQ Composite Index looks like this:
This is the index that includes the performance of the big name tech stocks like Microsoft and Apple. You can see how the blue up trend line has been violated. The red down trending line indicates the new direction. On this chart, the next level where buyers overcame sellers is 6350 — the late December, 2018 low. That’s a possible “support” area.
The Russell 2000 Small Cap Index looks like this:
Like the NASDAQ Composite, this index of the small capitalization stocks has broken down through the long-term up trend line. The Russell 2000 has also dropped well below the late December, 2018 low of 126. The next possible “support” level is at 89 which goes all the way back to the selling of mid-2016.
Just to contrast, here’s how the Gold chart looks:
Although, the price of gold has dropped along with stocks, it remains above the up trending blue line. The next level of significant support is suggested by the point-and-figure method to be at 112, a 2018 low. A break above the recent 158 high might eventually find old resistance at 174, the high from 8 years ago.
The main point here is that the basic picture of longer-term stock market movement has changed significantly — the NASDAQ and the Russell are now in p-and-f down trends even as the S&P 500 holds in there for now. This is a change from the past 10 years or so.
A clear explanation of point-and-figure charting can be found right here if you’re interested learning more about the method.
I do not hold positions in these investments. No recommendations are made one way or the other. If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.
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