The S & P 500, thanks to the outperformance of a small group of technology stocks, enters the second quarter on an upswing. The Relative Strength Indicator, a short-term (14-day) momentum indicator, stands at nearly 63 (30 is oversold, 70 is overbought). The Nasdaq 100, mostly tech stocks, at 68, is positively giddy. Q1: big cap tech is back Apple up 27% Microsoft up 20% Alphabet up 18% Amazon up 23% Nvidia up 90% Alas, the same cannot be said of other large indexes. While the last week of the quarter was positive for all the major indices, those that do not benefit from a tech overweight are still struggling to break out. For example, the Russell 2000 , the S & P Small Cap 600, and the S & P Midcap 400 all broke their December lows during the height of the banking crisis a few weeks ago. That’s not surprising: The Russell 2000, for example, is 17% regional bank stocks. The message is clear: for the moment, the majority of the market returns are being generated by large-cap tech stocks. Even last week’s broad rally lifted the average stock only slightly. I noted that cyclical sectors like industrials, materials, autos, housing and transports had a good week. REITs, coming off one of the worst months in their history, also rose. But that’s one good week in a long, miserable March. Back in early February, 75% of the S & P 500 stocks were above their 200-day moving average. That dropped in half, to 36%, at the height of the banking crisis March 15. Last week saw a significant bounce back, to 54%, but still, after a terrific week, almost half of the S & P 500 remains in a long-term downtrend. “This seeming disconnect reflects a retreat of investors to the perceived safety of the top ten or so best capitalized stocks, which is a stern market warning on its own,” Lowry, the nation’s oldest technical analysis service, wrote in a note to clients Friday. Bulls, of course, are hopeful that the banking crisis will be the ultimate blessing in disguise, forcing the Fed to finally slow its rate-hiking campaign, now that it has finally broke something and created a regional banking crisis. That hope for a Fed pause and eventual rate cut is why tech stocks have rallied. “While history says the banks drag down the rest, maybe this time Tech drags up the rest,” Frank Gretz, technical analyst at Wellington Shields, said in a note to clients Friday. Still, don’t get too caught up in sector plays. Considering how broad the ownership of the S & P 500 has become — about $6 trillion is directly indexed to the S & P 500, and maybe an equal amount indirectly — there’s no denying that the bounce-back in the last week has put the S & P 500 back into a longer-term uptrend which began with the rally in January of this year. That uptrend, however, needs to continue to broaden out. For the moment, it’s the best anyone can ask for. “A bullish breakaway hasn’t materialized, and the S & P 500 is back in its base,” Ari Wald, senior analyst at Oppenheimer, noted over the weekend.
