The recent recovery in the Nasdaq 100 may be set to continue as the bullish signals continue to pile up. Putting the market on a path to 14,000.
The U.S tech index has seen heavy selling recently. Inflation fears have forced many institutions out of growth stocks and back into value.
A growth stock is a company that is expanding rapidly with huge future potential. However, valuations often reflect this potential, and the prices can sometimes trade at a multiple much higher than their current revenue would suggest.
Think of companies like Uber, Lyft and peloton and you get the drift.
Growth stocks rely heavily on access to cheap capital to fund their future ambitions. Hence the Nasdaq 100 fell out of favor amidst the talk of the fed tightening their monetary policy.
The Nasdaq 100 has a large concentration of growth stocks, whilst the Dow Jones and S&P are more diversified.
The Consumer Price Index (CPI) data, earlier in the month, pointed to much higher than expected inflation. The Nasdaq 100 was sold heavily on the back of the CPI print.
Disappointing unemployment data followed, which has decreased the immediate risk of an interest rate hike. This has put the market in a sticky situation.
These short positions, at one stage, were looking good. However, as inflation fears subside, there is a real chance that the Nasdaq 100 will squeeze higher.
Nasdaq Price Outlook
The daily chart shows that since July 2020, the Index has remained within the confines of an ascending trend channel. Even the recent sharp decline wasn’t enough to test the lower end of the range.
Nonetheless, it did take the price below both the 50, and 100-day Moving Averages. This is considered bearish and will often lead to further declines.
The latest reversal to 13,500 has seen the price climb back above both indicators (13,347 and 13,327). Just as it was a bearish sign on the way down, it is a bullish development on the way up.
The improving fundamentals have now caused the technicals to turn favorable. This may be enough to initiate a short-covering rally. This has the potential to push the Nasdaq 100 Index back towards it previous all-time high at 14,078.
However, if the price revers and closes back below the moving averages it would cancel the immediate bullish outlook.
Nasdaq 100 Daily Chart
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