The Dow Is Yin, the Nasdaq Yang

The market acts like two contestants in separate isolation booths on a quiz show. The two contestants are the Nasdaq and the Dow. Each knows the other is there, but neither knows what the other is doing. Moreover, when one is right the other is wrong, and vice versa. If the cyclicals are down, that money seems to be flowing to the technologies and putting them higher. The next day, the money sloshes in the other direction. But, overall, the Nasdaq is winning, at least right now, so let's look there first.

After a pullback last week, and then a rally toward the close on Friday, the Nasdaq appears to be ready to push higher. A week ago the shorter-term Arms Index numbers (some of you may still know this indicator as the symbol TRIN) were saying that the Nasdaq had gotten ahead of itself, and had become overbought.

But now, after some selling, they are again in neutral territory, leaving room for more on the upside. After the Dec. 21 low, we went through a base building phase, and then a breakout in early January. The width of the base, in terms of volume, justifies more on the upside than we have seen so far. We need to get through the resistance it ran into last Wednesday, at just under 2900.

Beyond that, it is likely to run into much more formidable resistance around 3050. That is the region where it was turned back as it tried to rally on the way down, in October.

We are already seeing signs of heavier going, though. A couple of years ago I showed a new index in Barron's called the Yo-Yo. It measures how difficult it is for a market to move. We have found that the most difficult movement is at tops, and the easiest movement is at lows. Right now we are seeing numbers that say movement is becoming very difficult. The message, then, appears to be that this rally is likely to carry further, but will succumb to a more substantial pullback after that. (An invitation: Any institution -- sorry, I just can't handle the sheer number of requests from individuals -- wishing to see more on this can email me, and get a free copy of this week's advisory letter.)

In terms of the Dow, there continues to be little movement. In reality, it has been in a wide trading range for almost two years, and a narrower band within that range for a number of weeks. It is just about midway in both bands, and is therefore extremely indecisive.

Moreover, the volume is telling us very little, refusing to expand much on either advances or declines. But the Arms Index is saying that it is overbought on a short-term basis and oversold on a long-term basis. That suggests we will see a pullback in here, but that the eventual move out of the trading range is likely to be to the upside.

So, as you can see, the technical messages of the two markets are very different from each other. Perhaps this reflects the continued flowing of money from one part of the market to the other, which suggests that the tendency will continue.