Big Tech Stocks Are Lagging

One of these days, a top will lead to a bear market where the DOW/S&P drops 25%
while smaller indices as well as the NASDAQ drop in the 40% range. The average
stock gets hit much worse than the indices. Studies have shown that tops do have
certain characteristics. There are 2 main characteristics to find at a
top…distribution days as well as how leading stocks and sectors are acting. A
distribution day is defined by a drop on heavy volume. In the past, 4-5
distribution days was enough to kill an index. There are no better ways to
interpret a market that could get in trouble than these two.

Right now, we have seen 6 distribution days in the NASDAQ…normally enough to
kill a rally. We have talked about these distribution days on several occasions.
In fact, we really thought that the last distribution day on 5/24 was important.
This was a huge volume reversal day to the downside. So far, it has had little
effect. But while the NASDAQ had had 6, the DOW and S&P have had hardly
any….thus our thesis of a lagging NASDAQ. The DOW and S&P simply continue to
lead. We suspect this is because mega-cap names like MSFT, INTC, CSCO, DELL are
now slow boats…holding things back…as well as the lagging SEMICONDUCTORS.

The other part of the equation is leading stocks and sectors.. How are leading
stocks and sectors behaving? While the NASDAQ has had 6 distribution days,
leading stocks and sectors are acting just fine. Most have held firm despite the
recent distribution. You always want to keep this list because when they go,
odds favor the market goes. You can find the leaders in the MATERIALS, METALS,
CHEMICALS, ENERGY and other areas that were left for dead in the 90s. The good
news now is that leadership is starting to broaden out a bit here. Let’s hope it
continues. Besides the groups mentioned, e make note of the following leaders
that should be watched carefully because when they dive, it will give us a major
clue that the market is running into some trouble. In particular, we would pay
close attention to the OIL names as well as the COMMODITY names. They have been
leading this market for quite a while. In growth land, we would pay attention to
names like AAPL and CROX…which are now heads and shoulders leading at this
point.

AAPL, FWLT, RIMM, MA, BWLD, CROX, BA, HON, AXP, IBM, CMG, ESRX, RIG, NOV, DV,
SNA, JBX, CCJ, RIO, FCX, X, SI, CTV , RSH, GS, NVTL, DECK, UNP, BGC, AMX, POT.