The Nasdaq 100 Stock Index ($IUXX) (QQQ) rallied to a 1-year high today and has recovered half of its 1-1/2 year long selloff from a record high in November 2021 down to a 2-3/4 year low in October 2022. Additional gains look promising if the Nasdaq can maintain its upward momentum and climb above current resistance at 50% of its 1-1/2 year decline.
Expectations that the Fed is near the end of its rate-hiking campaign have been a key driver in the recent rally in the Nasdaq. Also, earnings results from the mega-cap technology stocks have mostly been better than expected this earnings season, bolstering expectations that the group can continue delivering strong growth. In addition, investors have also gravitated toward the mega-cap tech stocks as a safe haven from the U.S. regional banking turmoil and the debt-ceiling standoff.
The rally in the Nasdaq 100 has pushed the index to a significant resistance level at 50% of its bear-market selloff. A push above this level could spark technical buying and turn the longer-term trend back to bullish. However, a failure to break above it could be a bearish signal that suggests the recent rally was just a recovery in a bear market.
Most of the rally in the Nasdaq 100 has come from its seven largest stocks. Apple (AAPL), Alphabet (GOOGL), Amazon.com (AMZN), Microsoft (MSFT), Meta Platforms (META), Nvidia (NVDA), and Tesla (TSLA) have all gained at least 30% this year, with Nvidia and Meta Platforms both doubling. Without their contribution, the Nasdaq 100’s 24% advance this year would only be 4.1%. The rally in mega-cap tech stocks has also stretched valuations. The Nasdaq 100 trades at about 24 times estimated earnings, above its 10-year average. Also, Apple and Microsoft, the biggest overall weighted stocks in the Nasdaq, are well above their long-term averages.
Oppenheimer is optimistic about the potential for further gains and says if the Nasdaq 100 breaks above the 50% retracement, the next area of resistance could be more than 5% above current levels. Also, Kingsview Partners said, “There’s a strong possibility we break through the retracement, which would be a significant milestone and could mean a significant move higher.” However, Oppenheimer warns, "Market breadth isn’t as negative as it was, but it isn’t positive, and we are missing the kind of broad participation that confirms a breakout.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
