The Nasdaq 100 just hit another all-time high, as did the amount of people quoting the percentage of the index’s gains that are from its top five components. While that makes for a good headline and soundbite, it’s not really all that actionable. What is actionable is the chart below, which we spoke about in early June.
There are 51 stocks down since the Nasdaq 100’s initial peak on January 26th, meaning there is opportunity on both sides of the tape if you’re so inclined. What it also tells us is that it doesn’t pay to get ideological about how large components like Apple, Amazon, and Google have become. It’s a cap-weighted index, which means that as long as the leaders keep leading the index is going to move higher. When their performance deteriorates, as will the index’s; it works on the way up, and the way down. It’s just math.
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When leaders start to falter we’ll make adjustments to our approach, but for now we want to be trading with the trend and focusing on long opportunities in those names showing relative strength.
Names like Activision which has been consolidating above a rising 200-day moving average for 6 months, while momentum maintained its bullish range. Now the stock is breaking out to new highs, suggesting we want to be long if prices are above 77.50 and taking profits up near 108.
Paypal is also breaking out to new highs after 9 months of consolidation where momentum never got oversold. As long as prices are above 83.50 we want to be long with a price target of 116.75.
Here is a list of the rest of the Nasdaq 100 stocks breaking out.