Go Big or Go Home Leads to Caution as Nasdaq-100, S&P 500 Climb

Gains in U.S. stocks have become so focused on the shares of larger companies that the market appears ready to falter, according to Cam Hui, an adviser to Qwest Investment Management Corp.

The attached chart displays two indicators that Hui cited in a blog posting two days ago. He tracked the ratios of equal-weighted versions of the Nasdaq-100 and Standard & Poor’s 500 indexes to the original benchmarks, which give more weight to larger companies by market value.

Both ratios set this year’s highs in April, and then retreated to their lowest levels in more than two years. The Nasdaq-100 version dropped 5.2 percent from its peak through yesterday, while the S&P 500 version slid 3.3 percent. Their losses accelerated last week as well-received earnings from Google Inc. sent the Internet company’s shares surging.

“The troops aren’t following the generals,” Hui wrote in a Twitter posting on July 17 that featured the Nasdaq-100 ratio. The Vancouver-based analyst then provided a more detailed review of both ratios and other stock indicators on his blog, Humble Student of the Markets.

While the Nasdaq-100 has left shares of smaller companies behind, the index yesterday closed just 0.5 percent away from a record set in March 2000. The S&P 500 briefly exceeded a record from May 21 and closed about 0.1 percent from its high.

The equal-weighted ratios aren’t the only indicators that suggest stocks are poised to fall, Hui wrote. He cited declines in the percentage of S&P 500 stocks appearing bullish on point-and-figure charts, which track prices without taking time into account, and exceeding 200-day moving averages, which capture price trends over time.