Hot NASDAQ Stocks Hitting New Highs — But With Diminishing Momentum

It’s an alert for investors who pay attention to price chart indicators.

These amount to the distant early warning system of technical analysis, nothing more. When the price keeps going up but the momentum measures begin to stop going up, it might be time to begin thinking about what comes next.

The NASDAQ 100 index this week hit new all time highs and then backed away a bit on Friday. You can see the divergence now forming between the price peak and these key indicators of momentum:

This week’s new closing high exceeded the previous higher high in early June, before the index faded into the weekend. If you examine the relative strength indicator (RSI) above the price chart, you can make out clearly how it’s negatively diverging from price movement. It’s the same look with moving average convergence/divergence indicator below the price chart: higher price, lower indicator.

Microsoft
MSFT
stock looks like this on the daily time frame:

This major component of the NASDAQ-100
NDAQ
rallied furiously off of the mid-March lows to all time highs — and yet both basic momentum indicators are lower at this week’s price peak than at the February peak. You would think, given the ferocity of the buying since the lows, that these 2 measures might have at least re-established their previous highs.

NVIDIA
NVDA
is another big NASDAQ-100 component. The daily stock price chart looks like this:

So that’s 3 higher peaks in a row from May to June and each one shows up with a negative divergence on both the relative strength indicator (above the price chart) and the moving average convergence/divergence indicator (below the price chart.) This is one of the clearest of the charts revealing the issue.

Paypal
PYPL
is another NASDAQ-100 component with clear divergences:

Following the early May gap up in price, the stock continues to run higher and higher. What’s odd is how both of the momentum indicators initiate downward slants at the same point. The moving average convergence/divergence measure is particularly glaring as this week closed.

T-Mobile US is a NASDAQ-100 component with a daily chart like this:

The new all-time high hits this week and clearly takes out the previous peak from February. You can see that the relative strength indicator and the moving average convergence/divergence are unimpressed with the late June high: neither one comes close to their February peaks. Note that this is true even with the sudden burst of buying volume just seen — you can make it out below the price chart.

The relative strength indicator (RSI) and the moving/average convergence/divergence are not “buy” or “sell” signals. They are 2 of an arsenal of measures designed to gain insight on the movements of stocks and markets without interference from fundamental analysis.

That they are failing to confirm higher price highs does not necessarily mean that these stocks are done rallying. Bull markets have a way of continuing sometimes despite warning flags.

I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.