$NDX Diverges from Equal-Weight $SPX, Defensives Gain Ground

TopdownCharts
02-20 16:10

Learnings and conclusions from this week’s charts:

  • Tech stocks (particularly software) remain under pressure.

  • Investor exposure to tech is at historically elevated levels.

  • Surging tech capex is coming at the cost of buybacks.

  • Private equity stocks are also coming under pressure.

  • Defensive stocks meanwhile are looking up.

Overall, it’s fair to say that we are at a challenging juncture in markets. Tech stocks are coming under pressure, and from a starting point of major overvaluation and historically high allocations.

So it’s worth keeping a closer eye on risk management and potential upside in defensives, while staying pragmatic with the otherwise still bullish outlook for cyclicals/global/commodities…

Going it alone? as outlined the other day, the US tech sector remains under pressure, and the path of the Nasdaq 100 $NASDAQ 100(NDX)$ is presenting a very different picture than that of the equal-weighted S&P500 $S&P 500(.SPX)$ . So far it has been a case of rotation, with bullish rotation into cyclicals carrying the market for now.

But there is a risk that further downside in tech de-rails the bullish rotations and activates more of a defensive/bearish rotation or just plain and simple: downside for stocks in general.

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