• Ned Davis sees price, volume charts showing excessive optimism
• Yet others say rally justified by Fed, business fundamentals

(Bloomberg) — 

Fifty-year Wall Street veteran Ned Davis added his venerable voice to the chorus of worriers, citing the speed of the index’s advance — before today — and surging share volume. The Nasdaq 100 was down 2.8% Thursday, wiping out its gain for the week.

Of particular concern to bulls were plunges in Microsoft Corp. and Tesla Inc., right after reporting earnings that exceeded analyst forecasts. The very biggest internet and software companies, collected under the Fang umbrella, have now fallen in six of the last nine sessions, losing 4.6% over that span for their worst run since March.

“The Nasdaq 100 looks bubbly to me,” Davis wrote in a note to clients of Ned Davis Research. “If this isn’t a sign of climbing up a high diving board for speculation, I don’t know what is.”

He plotted the velocity of the advance against the S&P 500 and found the price ratio has exceeded the peak seen during the dot-com era in 2000. Similarly, trading among all stocks listed on Nasdaq has jumped to a record relative to those on the New York Stock Exchange as investors embraced speculative names.

The drumbeat for such warnings has picked up in recent months as the S&P 500 has come close to erasing its bear-market decline, bouncing back even as a recession and pandemic rage. That rally has nothing on the Nasdaq 100, which, driven by internet and software companies seen benefiting from social distancing, has surged more than 50% from its March bottom, sending its price-earnings ratio to the highest level in two decades.

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