One of my favorite ratios, and it's a very simple one, is 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, while 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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Tom Bowley, Chief Market Strategist