A seemingly unstoppable rally for U.S. technology stocks might be about to turn a corner given persistently weak market breadth in the face of an unrelenting rise in Treasury yields and the U.S. dollar, according to Jonathan Krinsky, technical strategist at BTIG.
The Nasdaq 100
NDX,
which tracks the largest 100 non-financial companies trading on Nasdaq exchanges, has gone 198 trading days without a 2.5% or worse daily percentage decline, Krinsky wrote in a Tuesday note, citing BTIG and Bloomberg data.
“While we are only through three quarters, the last full calendar year in which the NDX didn’t have a 2.5% down day or worse was 2013,” Krinsky said (see chart below).
However, the current streak for technology stocks is “so unusual” compared with 2013 as market breadth still remains narrow, Krinsky said.
Krinsky used the Nasdaq Composite
COMP
to get a broader sense of the market breadth. He said the percentage of stocks on the Nasdaq Composite above their 200-day-moving-average (DMA) was over 70% in 2013, and it only dipped below 65% for a handful of days. However, this year, the 200-DMA for the Nasdaq Composite has “routinely” been below 50% with only a brief spike above in February, Krinsky said.
“When the majority of stocks are above their 200-DMA like they were in 2013, a low volatility environment is expected,” Krinsky said. “When less than half of stocks are above their 200-DMA like they are now, the lack of a negative 2.5% day clearly stands out.”
As a result, the streak for the Nasdaq 100 is likely in jeopardy over the coming days or weeks given persistently weak breadth in the face of screaming Treasury yields and U.S. dollar, Krinsky said. “We can’t help but think a 2.5% or worse downside day is coming sooner than later,” he added.
See: U.S. stocks have had a great year in 2023 — but these numbers tell a different story
Treasury yields continued to climb on Tuesday with the 30-year yield
BX:TMUBMUSD30Y
jumping 16 basis points to 4.937% and heading for its highest level in 16 years. The yield on the 10-year Treasury
BX:TMUBMUSD10Y
advanced 12 basis points to 4.797%, according to FactSet data.
Treasury yields rose on expectations the Federal Reserve may still want to keep interest rates higher for longer over the coming years to curb inflation.
The U.S. dollar hit its strongest level in a year on Tuesday with the ICE U.S. Dollar Index
DXY
trading as high as 107.35, its strongest intraday level since Nov. 22, according to FactSet data.
See: Dow industrials erase 2023 gain as stocks extend selloff
U.S. stocks were tumbling on Tuesday with the Dow Jones Industrial Average
DJIA
down over 500 points, or 1.5%, to 32,929, while the S&P 500
SPX
was falling 1.6% and the Nasdaq Composite was dropping 2.1%. The Nasdaq 100 index was down 2%, at 14,533, according to FactSet data.
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