Technology bulls were bolstered Tuesday by more analyst optimism, states Jon Markman, editor of Strategic Advantage.
The Nasdaq 100 index rallied to 14,355, a gain of 0.4%. It could have been better. The benchmark NDX opened at 14,465 before briefly trading up to 14,520. The bears were in control from there.
Some attribute the selling from the highs to worry about House Republican opposition to the debt-ceiling deal reached by President Biden and House Majority Leader McCarthy. This was not the cause of the reversal. The debt ceiling deal is going to be completed.
Sometimes stocks simply fall on their weight. Bulls should worry about excessive optimism. Volatility is now historically low. And the same choir of analysts singing the praises of artificial intelligence and big tech was wildly bearish in January at the lows.
When the crowd is overwhelmingly bullish, the ranks of new buyers are exhausted. The negative imbalance leads to weakness. This process is being worsened by the urge of bulls to take profits after a huge runup. The benchmark NDX has gained almost 4,000 points during 2023.
A slight pullback toward what is now support at 13,890 is probable. The rising 20-day moving average at 13,635 is further support. Resistance is still 14,775, the gap created in April 2022.
The NDX Loop: Members bought the ProShares Ultra QQQ (QLD) on May second at $48.20. The 2X leveraged index fund closed Friday at $58.08.
Members sold half of the existing position on May 18 at $53.30, a gain of 10.6%, which is sweet. Members sold the second-half position Tuesday at $59.01, the opening price, a gain of 22.4%, which is awesome considering the holding period was less than one month. I’m looking for a new entry-level into a modest decline. I will send an intraday update when appropriate.
Behind the Headlines: Over the weekend, President Joe Biden and House Speaker Kevin McCarthy reached a tentative agreement to cap federal spending for two years in exchange for Republican support to increase the country's debt ceiling. At least 20 Republicans reportedly rejected the bill Tuesday. The bill needs to pass both the House and Senate.
The Treasury Department recently said the US is unlikely to have enough funds to meet its debt obligations beyond June fifth. In economic news, consumer confidence declined in May as views about current business conditions improved but labor market sentiment deteriorated, the Conference Board said.
US home prices continued their recovery in March, although mortgage rates and macro challenges are expected to remain headwinds to home values over the next few months, S&P Global said.