The recent chart from JPMorgan (chart JPM) shows a striking gap between the net long positions of the NDX and Russell indices. At first glance, this may seem like a simple discrepancy, but upon closer inspection, there are several factors at play that could have contributed to this gap.

Firstly, it’s important to understand the difference between the two indices. The NDX is an index of the 50 most actively traded stocks in the US, while the Russell Index is a broader measure of the US equity market, covering about 98% of the market. This means that the NDX is more concentrated and may be influenced by a smaller number of stocks, whereas the Russell Index is more diversified and may be less susceptible to the whims of individual stocks.

Another factor to consider is the time frame being measured. The chart from JPMorgan shows the gap between the two indices over a period of several months, which could indicate that there are underlying trends at play that are not immediately apparent from a shorter-term view. For example, there may be seasonal factors or long-term trends that are influencing the relative performance of the two indices.

In addition, it’s worth considering the potential impact of investor sentiment on the two indices. The NDX is often seen as a proxy for tech stocks and has historically been more sensitive to changes in investor sentiment than the broader Russell Index. This could mean that any shifts in investor sentiment towards or away from tech stocks could be influencing the relative performance of the two indices.

Finally, it’s worth noting that the gap between the two indices may not necessarily be a bad thing for investors. While it may seem counterintuitive, having a gap between the NDX and Russell Indexes could actually provide a more balanced view of the market and help investors avoid over-concentration in any one area. By diversifying their portfolios across both indices, investors can potentially benefit from the complementary strengths of each, such as the growth potential of tech stocks versus the stability of broader market exposure.

While the gap between the NDX and Russell Indexes may seem significant at first glance, there are likely a number of factors at play that could be influencing their relative performance. By taking a closer look at these factors and considering the potential implications for investors, it’s possible to gain a more nuanced understanding of this discrepancy and how it may impact the broader market.