THIS RALLY IS IMPOSSIBLY NARROW
The benchmark S&P500 is still down 1.88% on the year, but it is up 40.57% from the 3/23 low, and only 7.65% away from the all-time high close of 3386.15 set on 2/19. It seems like we have dodged a bullet, yet a look under the surface reveals a much sicker market. The relative performance chart below shows that while the S&P500 is still down 1.88%, but TPA’s BIGTECH Index (the top 8 stock in the NASDAQ 100 by market cap) is up an astonishing 48.99% year to date (YTD). The table below shows that these 8 stocks represent $8 trillion in market cap, which is 29% of the market cap of the S&P500 ($27.3 trillion).
TPA ran the numbers to see just what effect these 8 stocks have had on an index of 500 stocks. The table below shows the performance of these 8 stocks YTD and the weight of each stock in the S&P500. The BIGTECH effect has been to add 8.71% of performance to the S&P500 YTD. Since the S&P500 is down 1.88% for the year, without the BIGTECH stocks, the benchmark would be down 10.5% in 2020.
We have mentioned this before, but a healthy rally is one with broad participation. The current rally is very narrow; historically dependent on less than 2% of the S&P500 member stocks. This means the overall performance of the S&P500 is not representative of the market as a whole and it also means the index performance is highly levered to a very small group of stocks.
In addition, TPA Canaries in the Coalmine (table below) shows that the 14-day RSI of the ratio of BIGTECH/S&P500 is also at 70.87. That RSI level denotes that BIGTECH is overbought relative to the S&P500. At this juncture, one of two things can happen to make the BIGTECH/S&P500 ratio less overbought; 1. Stocks other than BIGTECH can rise faster than BIGTECH or BIGTECH can fall. Given how much BIGTECH has meant to S&P500 performance, investors should pray for the former.