Bulls came into Friday prepared to fight on the strength of another better-than-expected big tech earnings report. The counterattack soon faded. The Nasdaq 100 closed at 14,180, a gain of only 0.3%, states Jon Markman, editor of Strategic Advantage.
The advance for the benchmark was a small consolation for bulls. The NDX lost 2.6% last week, its worst performance since March. The index is down nearly 1,800 points from its July high. This is a problem. There is little indication that the appetite for stocks will abruptly rebound, even at this time of the year which is typically a magnet for investment flows.
What seemed like an inevitable march to new highs in early October has been reversed. Bears are now storming in the other direction, pushing toward the 13,927 level, the 200-day moving average. This effort is mostly uncontested by retreating bulls. However, there are some signs that a violent countertrend rally might be near.
Earnings during this financial reporting season have been solid for tech companies with exposure to large enterprises. This is important. There is currently a disconnect between share prices and reality. Executives from Microsoft (MSFT), ServiceNow (NOW), and Alphabet (GOOGL) all noted last week that there is strong demand for digital tech infrastructure.
After the close on Thursday, execs at e-commerce and cloud storage giant Amazon.com (AMZN) said that sales and profits far exceeded internal forecasts as corporate customers invest heavily in cloud and software infrastructure. This information—a confirmation of our decade-long recommendation to focus on digital transformation investments—holds the seeds of a yearend rally. If investors can stomach the volatility
It’s true that professional investors have sold every rally. They are concerned about a 2024 earnings recession. But those worries will fade if the NDX finds support at 13,927. However, let’s be honest: A decline through that would lead to weakness to 13,656, the gap from the May 25 breakout.
Given that the NDX is deeply oversold, be ready to buy any decline this week to the 13,656 level. But beware that the rebound could be as short-lived as the one- or two-day rallies we have seen in the past month.
NASDAQ Timing Model: Our timing model is now neutral. If it switches to bearish or bullish, we will let you know in an intraday bulletin.
