Big Tech Stocks Are Lagging

Gary Kaltbaum is an investment advisor with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show "Investors Edge" on over 50 radio stations. Gary is also editor and publisher of "Gary Kaltbaum's Trendwatch"...a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary's Daily Market Alerts click here or call 888.484.8220 ext. 1.

We have studied every major bull and bear market going back decades. It is in these studies that we have called every top since 2000...some to the day. The 2000 top was the mother of all tops. Since...each top has led to nothing more than intermediate corrections. When a top or bottom forms, we never know how far they go and how long they last. We just look for signs that things are changing.

One of these days, a top will lead to a bear market where the DOW/S&P drops 25% while smaller indices as well as the NASDAQ drop in the 40% range. The average stock gets hit much worse than the indices. Studies have shown that tops do have certain characteristics. There are 2 main characteristics to find at a top...distribution days as well as how leading stocks and sectors are acting. A distribution day is defined by a drop on heavy volume. In the past, 4-5 distribution days was enough to kill an index. There are no better ways to interpret a market that could get in trouble than these two.

Right now, we have seen 6 distribution days in the NASDAQ...normally enough to kill a rally. We have talked about these distribution days on several occasions. In fact, we really thought that the last distribution day on 5/24 was important. This was a huge volume reversal day to the downside. So far, it has had little effect. But while the NASDAQ had had 6, the DOW and S&P have had hardly any....thus our thesis of a lagging NASDAQ. The DOW and S&P simply continue to lead. We suspect this is because mega-cap names like MSFT, INTC, CSCO, DELL are now slow boats...holding things back...as well as the lagging SEMICONDUCTORS.

The other part of the equation is leading stocks and sectors.. How are leading stocks and sectors behaving? While the NASDAQ has had 6 distribution days, leading stocks and sectors are acting just fine. Most have held firm despite the recent distribution. You always want to keep this list because when they go, odds favor the market goes. You can find the leaders in the MATERIALS, METALS, CHEMICALS, ENERGY and other areas that were left for dead in the 90s. The good news now is that leadership is starting to broaden out a bit here. Let's hope it continues. Besides the groups mentioned, e make note of the following leaders that should be watched carefully because when they dive, it will give us a major clue that the market is running into some trouble. In particular, we would pay close attention to the OIL names as well as the COMMODITY names. They have been leading this market for quite a while. In growth land, we would pay attention to names like AAPL and CROX...which are now heads and shoulders leading at this point.

AAPL, FWLT, RIMM, MA, BWLD, CROX, BA, HON, AXP, IBM, CMG, ESRX, RIG, NOV, DV, SNA, JBX, CCJ, RIO, FCX, X, SI, CTV , RSH, GS, NVTL, DECK, UNP, BGC, AMX, POT.

Lastly, we couldn't end this report without mentioning the BOND MARKET. We have been bearish for a while but when support was broke in the past week, we turned longer-term bearish. We do nowt know what that will mean for equities but we will be watching. Equities have not had to deal with higher rates in years. Right now, they are still relatively low. But if the BOND MARKET gets out of hand and starts to head south meaningfully, the market could encounter serious headwinds.

Gary Kaltbaum