After an impressive rally over the past month, the Nasdaq Composite is trading ever-closer to the all-time highs reached in early 2000 at the height of the tech bubble. But according to Sterne Agee chief market technician Carter Worth, the rally is not as healthy as it appears—which points the way to pain ahead.
The basic problem, according to Worth, is the rally is not "broad-based." In other words, the Nasdaq is surging due to the strong moves of a few highly regarded stocks, such as Apple, Microsoft and Facebook.
To illustrate this fact, Worth points out while the Nasdaq Composite itself is up nearly 11 percent the year, the median stock is only up 0.35 percent, and the average stock is actually down 1.4 percent (as of Friday).
An even more striking fact is the 250 largest stocks by market cap are up 10 percent this year, while the 250 smallest stocks are down 22 percent this year. (Of course, included among the Nasdaq's smallest stocks are some truly miserable picks, including companies that have announced non-reliance on financial statements or straight-up filed for bankruptcy).
Worth graphically represents this trend by furnishing a comparison between the price of the Nasdaq Composite and its cumulative advance/decline line.