Technology bears spent Tuesday fleeing into the hinterland as their remaining defenses were systematically targeted and destroyed, states Jon Markman, editor of Strategic Advantage.
It was pure shock and awe. The Nasdaq 100 soared 2.1% to 15,812. The gain leaves the benchmark very near the 2023 high at 15,923. Bears have nowhere to hide. Record highs are possible within months. This outcome was assured in late October when the NDX rallied after executives at Microsoft (MSFT) reported a 27% jump in year-over-year profits on explosive growth at Azure, its cloud unit.
The story at big tech then was that corporate customers continued to spend aggressively to build out their digital transformation initiatives. This is important. The rally from the lows is based on positive fundamental developments that run counter to bear talking points about a 2024 corporate earnings recession. This is not a joke or unexplainable. As we have been saying for weeks, the move is justified and real.
And the timing is not random either, as we told you to expect fireworks in November. Now let me remind you that the week of Thanksgiving is historically one of the single best in the calendar from a seasonality perspective.
Bears have wounded a month ago on the Microsoft news. The extent of their injuries is now fully exposed. The bear narrative depends on the prospect of weaker corporate earnings and a vigilante, inflation-fighting Federal Reserve. Before the opening on Tuesday, the October consumer price index report showed that inflation is cooling.
The CPI measures inflation at the consumer level. Weaker numbers show that consumers are getting relief from inflation, a development that negates the need for the Fed to keep talking about raising interest rates. The fear of rising rates was the final bear defense line.
This narrative was destroyed Tuesday as the CBOE Fed Watch Tool revealed bond traders are beginning to price in the probability of a rate cut as early as May 2024. The next important resistance level for the benchmark is 15,932, the July high.
That level is in play for the remainder of this week. A rally to the record high at 16,645 could happen following a modest pullback around the debt ceiling debate. The first key support level is 15,334, the October high.