Monday, June 30, 2008

Nasdaq Still Leads Despite Sharp Drop

While the Nasdaq has fallen rather sharply lately, its still stronger than the NYSE composite based on 10-week relative strength. As I’ve discussed in the past, Nasdaq relative strength over the NYSE has generally been a positive for the market. I figured I’d look at this in the context of the recent selloff as well.

Glaring about this study is the low number of trades. This speaks to the relatively unusual market environment. While the 5 instances were somewhat mixed over the short-term, performance once you got out 13 weeks was strongly positive. For those interested, the trigger dates were 12/6/74, 8/8/75, 8/14/98, 8/6/99, and 7/19/02. ’74 and ’02 basically marked the bottoms. The other instances did some wiggling around before moving smartly higher.

To try and include some more instances, I loosened the “% drop” requirement for the Nasdaq. Lowering it to 5% produced the following results:

Not nearly as positive at the steeper 9% decline, but still very good on a risk/reward basis when looking out 10-20 weeks.

Nothing here that appears to be immediately actionable on its own, but as long as the Nasdaq can hold on to its leadership spot, the market stands a pretty good chance of putting in some intermediate-term gains.

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