Investors on the Nasdaq 100 returned to net buying on Friday and have sent the index up 0.48%, despite the 2nd worst durable goods orders data in history. There could be three reasons for this. Firstly, the markets already know the aviation and automobile sectors are in trouble. It happened in 2008, and both sectors had to be bailed out. Twelve years later, and both industries are on top of the list of the segments to be bailed out by funds provided for in the CARES Act if need be. So Nasdaq 100 investors may already have factored in the impact of a drastic reduction in sales and new orders as aeroplanes remained parked on tarmacs and the lockdowns force cars to sit in the houses of their owners.
The second reason may be the upcoming stimulus and a sweeping wave of calls to reopen the economy. Some governors have started to tilt towards this viewpoint. Even the US President seems to be stealthily pushing this narrative.
The third reason is that the pandemic has ramped up demand for products from the tech and healthcare companies listed on the Nasdaq 100. Bank of America’s research department estimates that nearly $5bn has been pumped into these stocks in the last week, even as investors are dumping airline, automaker and oil company stocks.
My outlook for the Nasdaq 100 has not changed much from previous ones provided earlier in the week. The resistance at 8691.0 continues to limit price advance, and 8442.5 continues to provide support.
A break above 8691.0 takes the Nasdaq above the upper border of the present channel and sends it towards 8945.7. However, only a break of this level to the upside and a violation of 9092.3 will re-establish the uptrend by forming a third higher high.
On the flip side, inability to break 8691.0 could render the Nasdaq 100 vulnerable to sideways movement, with 8442.5 acting as the floor of this range. A breakdown of 8442.5 invalidates this view and sets the Nasdaq 100 on course to target 8160.2 and 8015.5. Price decline to 8015.5 has to follow the collapse of the channel’s lower border as well.