One of my favorite ratios, and it's a very simple one, is just comparing NASDAQ 100 performance vs. the S&P 500 (QQQ:SPY). History tells us that the more aggressive QQQ performs better on a relative basis during bullish cycles, and the SPY performs better during bearish cycles. But divergences do occur at tops and bottoms as Wall Street repositions ahead of key market reversals. I find it interesting that money has been rotating back to the QQQ, just as this bear market seems to be gaining momentum:
If the S&P 500 continues moving lower and the QQQ:SPY rolls over and prints a new low, then I'd disregard this chart as bullish. If, however, the QQQ:SPY ratio has bottomed, we should at least be considering the possibility that so has the S&P 500.
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Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market.
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