AI and the chip stocks are surely conspiring to drive NASDAQ higher during this last leg of NASDAQ’s Best 8 months November-June. Our portfolios are enjoying this AI/Chip-driven rally, but the backdrop over the market remains cautious and still sets up for further sideways action and a likely pullback or correction over the weak summer months, explains Jeffrey Hirsch, editor of The Stock Trader’s Almanac.
We have created a new NASDAQ’s seasonal pattern chart that compares the one-year pattern of all NASDAQ years from 1971-2022 with pre-election years along with our STA Aggregate Cycle which is a combination of all years, pre-election years and years ending in three. So far in 2023 NASDAQ is closely tracking the pre-election pattern up 21.3% year-to-date.
All three pattern lines show a distinct mid-July peak and then sideways action through late October before the usual pre-election Q4 strength that often brings annual highs and perhaps even new all-time highs. This is lining up well for our NASDAQ Best 8 Months MACD Seasonal Sell Signal that can occur anytime on or after June 1.
Another concern for the near term is market internals. Market breadth has been uninspiring as new highs are not expanding while new lows continue to pop up and remain elevated.
In the chart below of the S&P 500 we have overlaid the NYSE Advance/Decline Line. Over the past month as the market has drifted sideways, the A/D Line has made lower highs and is trending down. This suggests that stocks in general are running out of steam.
The 3800-4200 range is also highlighted with near term support around 4050 still holding. NASDAQ and big tech may be rallying, but the rest of the market seems tired. As NASDAQ’s Best 8 months comes to a close in June, and the current AI/chip craze fades, we expect seasonality along with economic headwinds to prevail and keep a lid on stocks through summer doldrums.
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