It’s not a good sign that wide divergences between the Dow Jones Industrial Average DJIA, +0.67% and the Nasdaq Composite Index COMP, +1.44% have become almost commonplace.
Such broad divergences historically have been quite rare. Since the Nasdaq Composite was created in the early 1970s, just 12.8% of the trading days experienced such a wide divergence as investors experienced this week. So far this year, in fact, the proportion of these 1.0%-plus divergences has been 34% — almost three times greater. As you can see from the chart below, this year’s percentage is the highest on record except for the years associated with the internet bubble.
Interestingly, this inverse correlation showed up in the data regardless of whether the divergence was created because the Nasdaq outperformed the Dow, or the other way around. It is the divergence itself that appears to be bearish. And let there be no doubt that retail trading volume is surging. Charles Schwab, the giant discount brokerage firm, reported earlier this week that it added 3.2 million new accounts in the first quarter, more than for all of 2020. Barron’s estimated that the Robinhood app was downloaded more than 3 million times in January alone.
OPINION: the Dow is a useless index
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