The Nasdaq vs the Dow: A Long Term View
Most traders know big technology stocks have struggled over the past year. But how significant is the weakness? Today we’ll consider the question with the help of some longer-term moves and comparisons involving the Nasdaq-100.
There are two patterns on the weekly chart above. First, the tech-heavy index’s low this month was 38 percent below its all-time high. It also made its lowest low since July 2020, 116 weeks ago.
The other three big indexes, in contrast, troughed at levels from November 2020 (about 100 weeks ago). Their declines were also less dramatic. The S&P 500 fell a maximum of 28 percent. The Dow Jones Industrial Average slid 22 percent at its worst and the Russell 2000 declined 33 percent peak-to-trough.
Those comparisons help illustrate the lack of relative strength in Big Tech stocks and the Nasdaq in general.
Next, this chart shows the Nasdaq-100 as a ratio against the Dow Jones Industrial Average. The November 2021 high almost exactly matched the peak from the Dotcom bubble of March 2020:
It’s also noteworthy that the current pullback has lasted for less than a year. That’s less than half the length of the previous retrenchment, which ended in September 2002.
Finally, consider how leadership often changes during bear-market phases. For example, financials and housing took the lead after the Dotcom crash. Commodities and emerging markets outperformed after subprime. Then healthcare led in the 2012-2015 era, followed by megacap growth.
Judging by those kinds of 3-5 year epochs, some investors may expect a new kind of market on the other side of this bear. In the future we’ll consider which sectors may take the helm. But for today, these charts may suggest the Nasdaq is at risk of lagging for a while longer.
TradeStation has, for decades, advanced the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
Important Information
TradeStation Securities, Inc., TradeStation Crypto, Inc., and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., all operating, and providing products and services, under the TradeStation brand and trademark. You Can Trade, Inc. is also a wholly owned subsidiary of TradeStation Group, Inc., operating under its own brand and trademarks. TradeStation Crypto, Inc. offers to self-directed investors and traders cryptocurrency brokerage services. It is neither licensed with the SEC or the CFTC nor is it a Member of NFA. When applying for, or purchasing, accounts, subscriptions, products, and services, it is important that you know which company you will be dealing with. Please click here for further important information explaining what this means.
This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy. Any opinions expressed herein are those of the author and do not represent the views or opinions of TradeStation or any of its affiliates.
Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: https://www.tradestation.com/important-information.
There are two patterns on the weekly chart above. First, the tech-heavy index’s low this month was 38 percent below its all-time high. It also made its lowest low since July 2020, 116 weeks ago.
The other three big indexes, in contrast, troughed at levels from November 2020 (about 100 weeks ago). Their declines were also less dramatic. The S&P 500 fell a maximum of 28 percent. The Dow Jones Industrial Average slid 22 percent at its worst and the Russell 2000 declined 33 percent peak-to-trough.
Those comparisons help illustrate the lack of relative strength in Big Tech stocks and the Nasdaq in general.
Next, this chart shows the Nasdaq-100 as a ratio against the Dow Jones Industrial Average. The November 2021 high almost exactly matched the peak from the Dotcom bubble of March 2020:
It’s also noteworthy that the current pullback has lasted for less than a year. That’s less than half the length of the previous retrenchment, which ended in September 2002.
Finally, consider how leadership often changes during bear-market phases. For example, financials and housing took the lead after the Dotcom crash. Commodities and emerging markets outperformed after subprime. Then healthcare led in the 2012-2015 era, followed by megacap growth.
Judging by those kinds of 3-5 year epochs, some investors may expect a new kind of market on the other side of this bear. In the future we’ll consider which sectors may take the helm. But for today, these charts may suggest the Nasdaq is at risk of lagging for a while longer.
TradeStation has, for decades, advanced the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
Important Information
TradeStation Securities, Inc., TradeStation Crypto, Inc., and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., all operating, and providing products and services, under the TradeStation brand and trademark. You Can Trade, Inc. is also a wholly owned subsidiary of TradeStation Group, Inc., operating under its own brand and trademarks. TradeStation Crypto, Inc. offers to self-directed investors and traders cryptocurrency brokerage services. It is neither licensed with the SEC or the CFTC nor is it a Member of NFA. When applying for, or purchasing, accounts, subscriptions, products, and services, it is important that you know which company you will be dealing with. Please click here for further important information explaining what this means.
This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy. Any opinions expressed herein are those of the author and do not represent the views or opinions of TradeStation or any of its affiliates.
Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: https://www.tradestation.com/important-information.
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