The Nasdaq 100 Index is testing the resolve of an 11-year resistance level. Is it possible a repeat of the 1998 melt-up could be approaching?
Last week, the tech stock rally stumbled as worries surrounding the delta-variant Covid surge rattled global equity markets. However, this week, the March to 15,000 has resumed. Furthermore, history suggests that 15,000 may be nothing more than a pit-stop on the road to much higher prices.
In my report on Tuesday, I asked, “what’s a bigger threat, Covid or inflation?”
While both present challenges to markets, I opined that investors might be overestimating the potential damage.
But then again, didn’t the Nasdaq 100 more than double during the first two infection waves that gripped the globe?
Subsequently, the Nasdaq has turned sharply higher in the first half of this week, adding more than 400 points (2.7%) from Mondays low, after three consecutive green days.
What’s more, the index is close to breaking above an 11-year trend. And the last time this happened was in 1998. And we all know what followed.
Between February 1988 and January 1999, the Nasdaq 100 increased by 773%.
This incredible run of performance created a rising trend line that spanned 4018 days. When the Index penetrated the eleven-year resistance, it triggered a parabolic spike which culminated in a 250% rally, marking the end of the first tech bubble.
Following the Great financial crisis (GFE) in 2008, the Nasdaq 100 index has performed remarkably similar to the period that began two decades prior.
A clear trend line from May 2010 is apparent on the long term price chart. The trend line currently spans 4,077 days, just six weeks longer than the 1988-1999 rally.
Furthermore, the price is close to breaking out of the trend. In fact, if the Index gains just 160 points in the next seven days and ends July above 15,000, the Monthly chart will confirm the breakout.
Of course, this isn’t to say I predict the Index will more than double over the next year, but it does show that just when you think the price has done enough, it can often do more.
Considering the significance of this resistance, the coming seven days could certainly be interesting,