Technology bulls on Friday sprang out of their foxholes in full attack mode as Tesla (TSLA) shares surged following a surprise partnership with General Motors (GM). Although gains moderated, the Nasdaq 100 still closed 0.3% higher at 14,528, states Jon Markman, editor of Strategic Advantage.
Bulls have been on a roll since the middle of May when investors became captivated by artificial intelligence. Sell-side analysts since then have been busy picking future AI winners and building expansive new valuation metrics. There is no reason to cast aspersions. Hype is a feature of tech stock pricing, not a bug. That’s why the early surge Friday for the NDX is especially interesting.
Tesla and GM signed a deal Thursday evening to share the Tesla electric vehicle charging network. Neither GM nor Tesla are technology companies, according to the S&P Dow Jones, the keeper of the indexes. Each automobile manufacturer is an integral part of the S&P consumer discretionary sector, reflecting two-thirds of the US gross domestic product. Debating the tech bona fides of Tesla seems silly, however, it is easy to see how strategists might make a cogent case for its shares to continue to move higher even as other significant capitalization tech shares move lower to digest recent gains.
The Nasdaq 100 has important overhead resistance at 14,775, a level representing the April 2022 gap. Gaps often become pivot levels, drawing bulls and bears into intense skirmishes. The risk of a downside reversal for the NDX remains high.
The NDX Loop: Members earned an overall profit of 16.5% by buying ProShares Ultra QQQ (QLD), a 2x leveraged Nasdaq 100 fund, on May second and then selling in halves higher for gains of 10.6% and 22.4%. That’s great for a hold of just three weeks.
Let’s try to do that again. I’m hunting a new low-risk entry. I will send instructions when ready.
Behind the Headlines: The Nasdaq Composite rose 0.2% to 13,259.1 and the Dow added 0.1% to 33,876.8 Technology and consumer discretionary led the gainers among sectors, while materials, energy, and utilities finished at the bottom of the pile. Breadth favored the decliners five-three. There were 87 new lows vs 287 new highs.
Markets are currently pricing in a 71% chance that the Federal Open Market Committee will keep its key lending rate unchanged at 5% to 5.25% on Wednesday, according to the CME FedWatch Tool. The remaining odds are for another 25-basis-point increase.
Goldman Sachs (GS) expects the Fed to pause next week "to let the haze clear before it considers another rate hike," the firm said in a note. Meanwhile, the ban lowered its 12-month recession probability to 25%.