A performance comparison between the Nasdaq and the Standard and Poor's 500 index gives us a clue as to which sectors are likely to generate above average returns in the future. The Nasdaq is heavily allocated towards Technology, Health Care and Consumer Services. All these industry sectors have shown exceptional performance in the past and this trend is likely to continue in the future. We expect the aforementioned sectors to remain a preferred area of investment as against the more traditional industrial companies.
The current chart shows the ratio of the Nasdaq / S&P500. While the trend over the past few years has favoured the Nasdaq, recent market activity shows a strong acceleration of this trend which suggests that greed is showing its ugly head once more. The current price is more than 11 percent above its 40 week moving average, a level hardly ever seen in the past, while the 14 week relative strength index reveals a strong negative divergence. This would appear to be an ideal time to hedge open positions in the above mentioned sectors and stand aside.