Disturbing Pattern For Nasdaq

Includes: QQQ
by: Adam Alvarez

It was almost exactly 12 years ago that the Nasdaq enjoyed its current point level. A surge that would probably be even more publicized if not for the Dow Jones Industrial Average's recent run to within 600 points of all-time highs. However, on a mere percentage basis the tech heavy sector has actually markedly outperformed. Overall, enjoying a run that appropriately fits the innovative and fast-paced world in which we live.

However, before assuming more gains are all but guaranteed, it is important to look at what has been leading, or perhaps more importantly not leading, the climb.

Of course the most notable name leading the charge has been Apple (NASDAQ:AAPL). With sales of its latest product, the iPhone 5, topping five million after three days, the company appears to have plenty of good years left as far as sales and earnings go. However, with a PE ratio over 16 and a barrier at $700 that even the success of the latest iPhone couldn't break, the questions surrounding how much higher shares can climb only intensifies.

On the other side of the index, Whole Foods (NASDAQ:WFM) has all but rebuffed any belief that organic foods were just a phase that would eventually pass. With more belief and conviction regarding the company's direction, the stock has understandably outpaced growth. However, with a PE ratio over 40 and shares left to fight strong resistance at $100, don't count on even strong sales or a greater divergence towards organic foods to make buying here sensible.

Then, there are the laggards that must make sizable resurrections for the index as a whole to surge higher. At the very least, they will undoubtedly have to come off or well above their 52-week lows.

One major disappointment for the index has been the recent trade of Intel (NASDAQ:INTC). Only a couple dollars off lows hit last October and with shares plunging 22% from their May highs, the former tech giant has become nothing other than a burden for the index. A burden that such a high profile name would not be without cause and perhaps a precursor to a pullback in the index as a whole.

Then, there remains the continuously beaten down social networking sector led by Facebook (NASDAQ:FB). With shares dropping 10% and tripping a Nasdaq breaker on Monday after a very negative piece over the weekend by Barron's which labeled a more sensible price for shares at only $15, the future for the stock looks as grim as the past.

That more than likely won't bode well for the rest of the sector including Zynga (NASDAQ:ZNGA) and Groupon (NASDAQ:GRPN) which have now succumbed to more the makings of penny stocks.

All this does not mean that the Nasdaq is doomed in any way or on the verge of another tech crash. However, with so many in the sector either greatly outperforming or seriously underperforming, the stage is set for a convergence. Where that convergence occurs is undoubtedly no longer left for those outperforming to decide.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.