Big-Cap Tech Sorely Needs New Leaders

The Nasdaq-100 index has been outperforming the S&P 500 and Dow Industrials throughout the spring rally, with big-cap tech catching a strong bid for the first time since October. But too few stocks in the index have done most of the heavy lifting. This narrow leadership adds considerable risk to the fragile recovery off the March lows.

Let's identify the index leaders and laggards. This data-mining will give us the insight we need to make a reasoned judgment about the rally's mortality, now that earnings season is coming to a close. Simply stated, can the recovery continue while other market groups, aside from commodity-related issues, twist in the wind or succumb to selling pressure?

The spring calendar also plays a major role here. There's a legitimate reason for the classic expression, "Sell in May and go away." Over the years, the market has booked its best performance numbers in the first three or four months and then headed for the beach, just like the public does in the summer months.

The start of weak tech seasonality raises further concerns about the durability of the seven-week recovery effort. Finally, let's note that the Nasdaq-100 is the only major index that's trading above its 200-day moving average right now. These long-term levels denote major turning points, and it might not be different this time around.

We'll begin with the easy part of this analysis: identifying index leadership. A quick scan of your trading screens will confirm the overriding dominance of Apple (AAPL - commentary - Cramer's Take) and Google (GOOG - commentary - Cramer's Take) in the spring rally. Both stocks have risen about 20% in the last month and have recovered major ground between their January lows and 2007 highs.

Another Pace-Setter

Broadcom (BRCM - commentary - Cramer's Take) is the most notable leadership name apart of these two juggernauts. The chipmaker has risen nearly 28% in the last 30 days, jumping off the four-year low posted in March. Its resurgence points to a reawakening in the chip sector and the likelihood that this beaten-down market group will lead the broad averages in coming months.

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At the time of publication, Farley had no positions in stocks mentioned, although holdings can change at any time.

Farley is also the author of The Daily Swing Trade, a premium product that outlines his charts and analysis. Farley has also been featured in Barron's, SmartMoney, Tech Week, Active Trader, MoneyCentral, Technical Investor, Bridge Trader and Online Investor. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

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