A growing divergence between the major indices as they recover from last month's major sell-off will give way to volatile market moves in the near-term, according to a new report from Piper Jaffray.
A technical analysis of the difference between the Dow and Nasdaq Composite's bounce over the course of the last month will likely give way to a "sloppy tape of backing and filling over the coming weeks/months" with more vacillating risk-on, risk-off price action, wrote the firm's chief market technician, Craig Johnson. Here are his reasons.
• From a technical perspective, there has been a notable divergence among the major averages during the recovery process in the wake of the early-February sell-off.
• The Nasdaq Composite has managed to recapture its 50-day moving average, recently rallying to record highs. It is notable that the index is up over 10 percent in 2018, while just about 5 percent of its components are trading at 52-week highs.
• Meanwhile, the chart of the Dow tells a different story. The 30-component index is now registering consecutive lower highs, subsequently violating its 50-day moving average.
• Within the Dow, too, there are several extended stocks which appear ripe for a deeper pullback.
Bottom line: The extent to which the Dow and Nasdaq have recovered in the course of the last month is indicative of "sloppy" price action ahead, according to Piper Jaffray.