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Brief: Nasdaq 100 At Record Highs – Buffett Indicator Warns About Valuation

nasdaq 100 futures
nasdaq

The Nasdaq 100 index closed at a record high for the 51st time this year as traders remained optimistic about a Santa rally. The index is trading at $12,633, which is a record. Other key indices like the Dow Jones and the S&P 500 are also in the green. Most importantly, the closely-watched Buffett indicator has continued to soar.

Why is the Nasdaq 100 soaring: There are several factors in play. First, the index is going through its annual reorganisation, which will see companies like Marvell Technologies, Peloton, Okta, Match Group, and Atlassian join the index. These firms will replace companies like Expedia, Citrix, Liberty Group, and Take-Two Interactive.

Second, the Nasdaq 100 index is soaring in part because of the optimism of a stimulus deal. While the proposed deal will not have the $1,200 stimulus checks, it will have more money for vaccine distribution and companies. 

Third, the tech-heavy index is also cheering the roll-out of Covid vaccine by Pfizer and signs that the FDA will authorise the one made by Moderna. Also, investors are optimistic that the Fed will sound dovish in its today’s meeting. The Santa Claus rally is also contributing to the ongoing rally.

But. But. But. There are signs that the Nasdaq and the other indices are getting overvalued. The fear and greed index remains at the greed zone while the Buffett indicator is also stretched. This indicator compares the current market cap of all US equities and the overall GDP of the American economy. The current numbers imply that stocks are about 182% overvalued.

Buffett Indicator Chart

Nasdaq 100 technical outlook

What next for the Nasdaq 100: The daily chart shows that the Nasdaq 100 index has been on a strong uptrend in the past few days. The index remains above the short and long-term moving averages while the Relative Strength Index (RSI) has continued to rise. Therefore, the path of least resistance for the index is still higher, with the next target being $13,000.

Nasdaq 100 chart

Nasdaq 100