The 2020s mega cap melt-up rhymes with the 1990s mega cap melt-up

In our view, the current melt-up for mega cap stocks relative to large cap stocks from early 2023 resembles the melt-up from the mid-1990s into the 2000 peak and still has room to run. The S&P 100 Index (OEX) measures mega caps, while the S&P 500 Index (SPX) measures large caps. The technical case continues to support a move out of a multi-year bottoming pattern that favors ongoing mega cap leadership.

Chart 1 below shows that the OEX has maintained its leadership by defending its rising 100-week moving average (WMA) relative to the SPX in late February and late March. This keeps the focus on the 61.8% retracement of the mid-2000 to early-2015 lagging trend for the OEX/SPX ratio at 0.5044.

Given the successful defense of a major long-term moving average and the large multi-year base pattern, we continue to look for mega cap leadership to extend beyond the 61.8% retracement level. If this view plays out, it would imply a continued melt-up phase for the OEX, with a retest of the 2000 relative peak versus the SPX not ruled out.

Sponsor Message From Author, Stephen Suttmeier, CMT, CFA:

The OEX shows a bullish breakout and retest vs. the average SPX stock

When discussing the equity market, technical analysts often refer to the “generals” and the “troops.” The generals are the mega cap stocks that dominate capitalization-weighted indices, while the troops represent smaller stocks and/or the “average” stock.

The S&P 100 Index (OEX) relative to the S&P 500 Equal Weight Index (SP500EW) continues to display a constructive long-term technical setup. A bullish breakout-and-retest pattern, along with successful defense of the rising 100-week moving average (WMA) in late February and late March, keeps a two-decade-long base formation intact.

This suggests that the generals can continue to lead the troops, a dynamic that was also evident during the powerful stock market advance into the 2000 market peak.

In our view, both the large base pattern and Fibonacci retracement levels tied to the 2000-2015 decline in the OEX/SP500EW ratio support the case for continued mega cap leadership relative to the average stock.

As long as the OEX/SP500EW ratio remains above its rising long-term moving averages and former breakout zone, the technical evidence continues to favor ongoing relative strength from mega caps vs. the average stock.

Could the NASDAQ Comp confirm a 26-year big base relative to the S&P 500?

The ratio of the NASDAQ Composite Index relative to the S&P 500 Index is one of the most important long-term relative strength gauges for the U.S. equity market. A rising NASDAQ/SPX ratio suggests leadership from technology, growth stocks, innovation-driven sectors, and higher-beta risk assets, which aligns with the current market environment. Conversely, a falling ratio tends to reflect defensive leadership, value stock outperformance, narrowing risk appetite, and more cautious market conditions.

We continue to closely watch the March 2000 peak for the NASDAQ/SPX ratio, which remains a major long-term resistance level in our view. The NASDAQ/SPX ratio experienced a powerful melt-up from 2019 into 2021, rallying to 3.59 and nearly retesting the March 2000 peak near 3.62.

Since then, the NASDAQ has consolidated relative to the SPX. However, the ratio’s breakout in mid-2025, followed by a successful retest of support in early 2026, supports the case for renewed NASDAQ leadership relative to the SPX. This places the focus on a potential breakout above both the 2021 and 2000 peaks, which could confirm a massive 26-year base formation and trigger another melt-up phase in the NASDAQ/SPX ratio.

The upward slope of the 100- and 200-week moving averages further supports the view that the early-2021 through mid-2026 consolidation may represent a bullish continuation pattern with the potential to resolve higher.

If confirmed, such a breakout would likely signal:

• Continued leadership from mega cap technology and growth stocks
• Stronger investor risk appetite
• Expanding participation from innovation-driven sectors
• A continuation of the secular growth leadership trend that has defined much of the post-2016 market cycle

Stay tuned…

Narrowing breadth? Someone forgot to tell that to the Russell 3000

Is market breadth narrowing? Perhaps within the S&P 500 Index, which pushed to new highs into early May while its advance-decline line last peaked in mid-April. This does suggest some diminishing participation behind the SPX rally above the 7000 area.

However, breadth for the broader Russell 3000 Index remains constructive. The advance-decline line and advance-decline volume line both confirmed the breakout to new highs for the Russell 3000 and the iShares Russell 3000 ETF (IWV) in mid-April.

In addition, both breadth indicators moved to fresh highs again as of May 6, confirming the continued rally in the Russell 3000, prior to a slight downtick into the end of last week.

This distinction is important. While mega cap leadership has remained dominant, the broader market has continued to participate beneath the surface. In other words, breadth among the “troops” remains healthy even as the “generals” continue to lead.

From a technical perspective, this is generally a more constructive backdrop than one in which only a narrow group of mega cap stocks drives index gains. Strong participation across market capitalizations tends to support the durability of the broader bull trend.

As long as the Russell 3000’s advance-decline measures continue to confirm price strength, the evidence argues against a major internal deterioration in the U.S. equity market.

Chart 4: iShares Russell 3000 ETF (IWV) (top), Russell 3000 advance-decline line (center), and Russell 3000 advance-decline volume line (bottom): Daily chart

What about those Mag Seven stocks?

The so-called Magnificent Seven consists of a group of mega cap stocks — Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG/GOOGL), Meta Platforms Inc. (META), Microsoft Corp. (MSFT), NVIDIA Corp. (NVDA), and Tesla Inc. (TSLA) — that represent some of the largest “generals” in the market in terms of capitalization and have an outsized impact on capitalization-weighted indices such as the S&P 500 Index.

The Roundhill Magnificent Seven ETF (MAGS) topped out relative to the SPDR S&P 500 ETF (SPY) and formed a head-and-shoulders topping pattern from the late-2025 peaks. Similar to the correction into the April 2025 low, the 2026 pullback into the late-March low coincided with a weakening relative trend for MAGS before stabilizing and resuming leadership versus the SPX from the late-March low.

In our view, February-April 2026 rhymes with the March-May 2025 period. Both phases featured bottoming formations followed by tactical breakouts in relative strength for MAGS.

The prior relative breakout for MAGS versus the SPX lasted into late October and helped provide a meaningful tailwind for the broader rally in the SPX. As a result, the key for the U.S. equity market is for this latest tactical breakout to hold and for MAGS to continue leading on a relative basis.

Our work currently points to:

• Improving-to-bullish technical patterns for AAPL, AMZN, GOOG/GOOGL, NVDA, and TSLA
• A stabilizing technical setup for MSFT
• A more challenging technical backdrop for META

Overall, continued relative strength from the Magnificent Seven would likely reinforce:

• Mega cap leadership
• Growth and technology outperformance
• Positive risk appetite
• Ongoing support for the broader U.S. equity market advance

However, if leadership from MAGS begins to fail again on a sustained basis, it could become an important warning sign for the broader market given the group’s significant influence on capitalization-weighted indices.

---

Shared content and posted charts are intended to be used for informational and educational purposes only. CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. CMT Association does not accept liability for any financial loss or damage our audience may incur.

---