Technology bears are suddenly in big trouble, states Jon Markman, editor of Strategic Advantage.
The Nasdaq 100 Index (NDX) pivoted from the low on Friday and has found a persistent bid. The benchmark index surged on Tuesday to 11,206, a gain of 0.9%. The index has gained 4.7% during the past three days.
A big part of the strength, apart from short covering, is the continued leadership of semiconductors. This deep cyclical sector, along with other non-tech groups, like heavy equipment, and basic materials has gained favor with professional money managers.
Pros believe that the Federal Reserve is on the wrong side of the economic data and that short-term interest rates are too high. Against that bullish narrative, pros are buying economically sensitive stocks ahead of every important data release. That is where the trouble for bears begins.
The Consumer Price Index report is due on Thursday morning. A dovish CPI will cause panic in the bear camp. There is minor resistance for the NDX at 11,363, the 50-day moving average.
A rally beyond that point will start a violent rally toward the 200-day moving average at 12,186. Key support remains at 10,674.
THE QQQ Loop: Let’s update the QQQ Loop trade parameters. Set up to buy the ProShares Ultra QQQ (QLD) at the new $35.80 lmt gtc. The QLD is an exchange-traded fund that delivers two times the daily performance of the Nasdaq 100 index. If filled, place a new order to sell half of the position at $37.49 lmt gtc, and the other half at $41.90 lmt gtc. Place a new stop loss order at $34.00 stp. If this trade works, the potential upside target is +4.7% and +17%. The potential downside risk is -4.4%.