We are in a fascinating stock market moment as five popular big tech stocks have been asserting so much leadership in the stock market action that they now make up 50% of the entire Nasdaq 100.
That’s because the Nasdaq 100 is a market cap weighted index.
Yes, if you guessed that these stocks are Facebook, Amazon, Google, Apple and Microsoft you guessed right, but what does this mean for the stock market?
Sometimes a visual image makes it more apparent what is going on so here you go.
And these stocks have been going straight up.
Everyone wants to own them and so many people are now chasing them or buying more to pyramid with margin.
But we have seen some warning signs.
For one thing popular stock NFLX gapped down on earnings last week and is now broken.
Last Friday MSFT gapped up on earnings and closed on the low of a day.
That action Friday is a potential reversal sign and the fact of the matter is that there are stocks now acting much weaker than the stock market averages are and breaking down.
When five stocks have gone up so much that they make up half the Nasdaq 100 it means that people are just chasing those stocks. It means that market breadth is very narrow and it’s a big danger sign that the party is nearing an end.
There are a lot of other stocks now that are actually performing poorly.
But the tough truth is that it is tough to trade by simply buying something that is going up the most and chasing it.
That’s why I like good patterns that lead to nice entry points with good upside potential.
My favorite pattern involves a consolidation breakout and for the past two weeks I have pointed out a likely possible move in MSB and on Friday it began.
On July 9 I made MSB a top stock pick.
MSB simply lined up for a high probability move that didn’t involve chasing something that already had gone up a lot.
And that’s what led to a big move in a single day on Friday.
My favorite trading pattern is what I call the Two Fold Formula and I made a book that explains it.
To grab this book simply click here.
