Technology bulls started Friday in fine fighting spirit following a weaker than expected inflation report. At one point, the Nasdaq 100 index climbed to 1.4% gain, states Jon Markman, editor of Strategic Advantage.
The rally did not hold. The benchmark closed at 14,715, an advance of only 0.1%. It was not all bad news. That minuscule rally helped the NDX squeak out a small gain for the week, the first win in a month. None of these outcomes are coincidences. Traders are battling on both sides of the tape for every point. Professional money managers have been busy all September selling winners. Pros are betting that higher interest rates will lead to a significant recession in 2024 and that that stock prices will contract accordingly. They point to the 2008-2009 financial crisis.
Catastrophic events occur because they are unforeseen. The fact so many pros are worried about a debt crisis probably means no crisis is forthcoming. Moreover, two months ago pros were carefree, chasing the indexes higher. They were convinced that the economy was headed toward a soft landing, and that corporate profits would not be negatively impacted by higher interest rates. This calculus suddenly changed in September as the Federal Reserve signaled one more increase in its key bank lending rate.
Pros are often wrong about stock price trends. I respect that they are currently holed up in the bear camp. This also should ensure that all near term rallies will meet with aggressive selling, like Friday. However, bearish seasonality usually ends in two weeks. Pros do not set longer-term trends. They follow. Critical support for the NDX is 13,656, the gap from the May 24 upside breakout. There is further underpinning at 13,557, the rising 200-day moving average. Resistance is 15,181, the declining 20-day moving average.
Double Trouble: Our NDX timing model is bearish. I will send an intraday trading alert when appropriate.