A Goldman’s report has revealed that Hedge Funds had shorted Tech stocks in 9 days of the last 10. This opens the door for the Nasdaq 100 to squeeze higher.
The report released yesterday detailed that whist overall, clients had been net buyers of equities, they had sold tech names in heavy volume. Institutions were not just closing longs but also going short.
This suggests that the market is rotating out of high-priced growth stocks and back into value stocks. Sector rotations are not uncommon in equity markets. Growth (tech) stocks have done particularly over the last year. Shuttered economies and uber-easy monetary policy have contributed to the Nasdaq 100 share price outperforming the Dow Jones by a huge margin since the start of the pandemic.
As the market adjusts to economies reopening and the threat of higher interest rates sometime in the future, it would make sense for allocations to be rebalanced.
This does, however, leave the Nasdaq vulnerable to a sharp increase in price. As we have seen in 2021, shorted stocks have the ability to rise in price and do so very quickly.
In fact, rises in the ‘most-shorted stocks were a major contributor to the Nasdaq share price performance in 2021.
Nasdaq Technical Outlook
Since reaching an all-time high of 14,078 on April 29th, the Index has struggled. Four consecutive days of lower closes had seen the Nasdaq 100 retreat -5% from its peak.
Further declines were stemmed as the market approached the support of the 50-Day and 100-Day moving averages (13,364 and 13,276). The price found additional support at 13,350, which links a series of highs from March and April.
After holding key technical levels, the Nasdaq 100 is attempting to build a base. A break back above the 13,700 resistance (mid-April lows) may be enough to put the ATH back into view.
A lot will depend on today’s employment data out of the U.S, and a close below the 100-Day MA at 13,276 would make this bullish view redundant.
But in my experience, the market often goes to where the most pain is, and in the short-term, that looks to be higher.