It may be early yet, but the Nasdaq has been changing its spots since Jan. 6.
It has been sending several cues of a powerful trend. Some are obvious, others not so obvious.
The obvious cues are the most recent ones. The index cleared its 200-day moving average on Jan. 27 with strong volume. Before that, the Nasdaq climbed above the 50-day moving average on Jan. 11. Again volume was higher, a bullish indicator.
You can see the not-so-obvious cues by studying the index on IBD Charts or MarketSmith.
Since the follow-through day Jan. 6, the index has been climbing in higher volume, while weaker action has come in lighter volume.
Joe Fahmy, managing director at Zor Capital, described that bullish trend in IBD Live Tuesday morning. He notes that if you dissect each day since the follow-through, the Nasdaq has revealed a subtle character change.
"Almost every day that has been an up day has been on higher volume than the previous day," he said in the show. "Every sideways to pullback or shake-out day has been on lighter volume."
There's been subsequent follow-throughs, too. Jan. 11 not only saw the Nasdaq retake the 50-day moving average, the index also posted a solid 1.8% gain. On the 20th, it saw a 2.7% surge. On Jan. 23, the index rallied 2%. All three days had higher volume.
The action adds up to "signs of institutions consistently coming into the market."
Big Money Entering Nasdaq Stocks
The sequence of follow-through days shows support from institutional money and bodes well for the stock market. Still, the market faces risks from interest rates and other factors.
Pullbacks in lighter volume are ideal for an uptrend. After the Jan. 11 rally, for example, the index pulled back gently Jan. 18-19 with support at the 21-day exponential moving average. For most of 2022, the index actually hit resistance at this line, Fahmy noted.
"We broke out, held that 21-day," he said.
Jan. 18 had good volume and would normally count as a distribution day. But the index has gained more than 5% since its pullback on the 18th and so the Nasdaq has zero distribution days so far this year.
Fahmy said other favorable trends are that there have been more stock breakouts and those breakouts are mostly holding up. Growth has also started to edge out value stocks.
And — get this — the Nasdaq typically sees fewer trades change hands on the Monday following the Friday of monthly options expirations. But Jan. 23 saw higher volume as the index added 2%.
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