Key Points
There have been two times since 2021 when the Nasdaq-100 moved higher as the number of stocks trading above their 200-day moving average fell.
In both of those instances, the Nasdaq-100 subsequently fell by more than 20%.
That same pattern is happening for the third time right now.
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At some point in 2024, market sentiment began to shift. Even though the Nasdaq-100 was continuing to set new all-time highs, the number of stocks trading above their 200-day moving average declined pretty steadily from January all the way through December. The trend was fairly intuitive at the time, because we knew that the “Magnificent Seven” stocks were almost single-handedly pulling the major averages higher.
In hindsight, that trend was interesting because it preceded a more than 20% correction for the index related to President Donald Trump’s “Liberation Day” tariffs.
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This same story also played out in 2021. The Nasdaq-100 and the Invesco QQQ ETF (NASDAQ: QQQ) that tracks it were in a furious bull market ascent as the economy was recovering from the COVID-19 pandemic shutdowns, thanks to a multitrillion-dollar stimulus package from the U.S. government. The index spent most of the year moving higher, with just a few bumps along the way.
But just like in 2024, the number of stocks in the index trading above their 200-day moving average was decreasing. In March of that year, roughly 90% of the components were trading above their 200-day moving average. By Christmas, it was closer to 50%.
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What happened next was the start of the 2022 bear market that was fueled by soaring inflation and a Fed that was far too slow to respond to what was happening. In this case, the Nasdaq-100 fell by more than 30% from peak to valley.
Today, we’re approaching a similar scenario.
After bouncing off the “Liberation Day” low in April, U.S. equity prices spent the remainder of 2025 pushing consistently higher. But the number of stocks trading above their 200-day moving average peaked during the second quarter of the year and has been moving lower ever since.
If this pattern remains intact, does that mean another 20% correction is nearing?
The path of returns in these past situations is somewhat understandable. It suggests that rising market averages are being supported by fewer and fewer stocks. Then, when those handful of leaders finally crack, the index goes tumbling with it.
What about this time?
The same thing seems to be happening again. In 2025, only three sectors outperformed the S&P 500 (SNPINDEX: ^GSPC). Two of them were technology and communication services — in other words, the home of the “Magnificent Seven” stocks. Where do a lot of these stocks reside? The Nasdaq-100 index. If you’re looking for the setup for a repeat, 2026’s is pretty compelling.
As far as whether a 20% correction is coming for the Nasdaq-100, it may have already started. The index is 6% below its all-time high as I write this. Technology is the worst-performing of the 11 S&P 500 sectors year to date. Given what’s also happening in the crypto market right now, there definitely seems to be a risk-off sentiment that is developing.
Don’t be surprised if you soon see that the Nasdaq-100 index is in bear market territory. The signs were there.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
