$NDX top 10 holdings video update- buy the dips or sell the rips?

the million dollar question in the early stages of any pullback in the markets, especially after a strong advance like the market has experienced over the last few months is: "Is this pullback a good buying opportunity to get long as the pundits in the media are claiming?"  -OR- "Is this the beginning of a much larger correction in stock prices and a great time to be shorting?"

for those of you that have been following this site, you know my longer-term bias remains bearish.  however, i have maintained that once a pullback began that we would need to assess the market action and the charts to determine which of the two completely divergent opportunities it is- a buying opportunity or shorting opportunity?  to keep this post manageable, let's just focus on one thing for now: the $NDX or Nasdaq 100.  on august 26th, i made a video overview covering the top ten holdings in the $NDX/QQQ, which has clearly been the leading index for a long while now.  now that a pullback has apparently started, i made an updated video covering those top 10 holdings in order to help answer the question above (buy the dips or sell the rips?)

my point has been that the top 10 components of the $NDX (just 10% of the 100 stocks) represents over 1/2 of the total weighting of that index.  therefore, by following those 10 stocks, we can get a good idea where the leading index is likely headed.  remember that AAPL alone represents over a 20% weighting in the $NDX.

bottom line: if these charts looked overall longer-term bullish to me, even if overbought and only in need of a temporary pullback, then i might be inclined to look for objective long entries in which to "buy the dip".  however, what i am seeing on these charts looks more like early stage breakdowns of over-extended stocks which are most likely only in the very early stages of much deeper corrections.  i will admit that some charts might appear bullish (and i'm sure they all look bullish to a permabull who only sees what they want to see).  for example, GOOG just broke out to new highs...a very bullish technical event.  however, as the chart in this video shows, prices were already extremely extended (overbought) in doing so with significant negative divergences in place on the weekly chart, which sharply increased the odds of the breakout failing soon (a very bearish technical event, if it happens).  therefore, i maintain a bearish (downside) bias to the market and prefer shorting at current levels vs. positioning long on pullback to support at this time.

click here to view today's updated $NDX Top Ten Holdings Video Overview.

Sep 26, 2012 12:47pm|Categories: Equity Market Analysis|Tags: , , , , , , , , , , |Comments Off on $NDX top 10 holdings video update- buy the dips or sell the rips?