Despite the economic situation and latent fears (you only have to look at the bond market), the stock markets, especially the American ones, seem to continue to accumulate a record high after another (the streak seems to have ended today). That does not mean that there are worrisome symptoms, as is being warned around the Nasdaq 100.
The index, of great weight in the technology sector, is showing serious signs of overheating, indicating that a sizeable sale could be just around the corner.
After rising 10% in the last month, the index – which includes giants like Apple, Amazon and Microsoft – has seen how Its Relative Strength Indicator, which measures the momentum of rising and falling prices from 0 to 100, has soared to 78, which is an overbought. Traders see this as a counter sign that a decline is imminent, because buying has been excessive. Four of the last five times that the indicator reached that level, the Nasdaq 100 fell 12% or more to the next low.
At the first signs of a setback, the Nasdaq 100 fell this Monday for the first time in 11 sessions, breaking the longest winning streak since December 2020. The index fell further this Tuesday, falling 0.71%, especially affected by Tesla, which has fallen 11.99%.
“The biggest drivers of Nasdaq 100 performance in the last month have really been concentrated in a few high-yielding stocks, which is remarkable,” he explains to Bloomberg Chris Berthe, Global Co-Head of Cash Stock Trading at JP Morgan Chase. In fact, in the last month, Tesla and Nvidia were among the biggest gains, adding up to several hundred billion dollars in market value.
The last leg of the rally to the all-time high has also been driven by a series of positive results from tech companies and moderate messages from the Federal Reserve on rate hikes, which have helped the index outperform the S&P 500 by more than three percentage points since the earnings season began in mid-October. But superior performance can’t last forever.
“It would be better if this index took a break,” he also assures Bloomberg Matt Maley, Miller Tabak’s chief market strategist. “In fact, it would help the tech sector go higher towards the end of the year.”
However, Tuesday’s move might not necessarily be a sign that a double-digit decline is looming, as can remain at overbought levels for a long period, as in early 2020.
Additionally, Citigroup strategists say the positioning in Nasdaq futures contracts appears more balanced after some of the bearish trading was undone last week. “However, pockets of risk still exist,” strategists led by Chris Montagu write in a note.
There is a lot of news that can help change the sentiment against the technology sector in general: the China’s regulatory crackdown continues and there is increasing evidence that companies that benefited from pandemic shutdowns are now suffering as economies reopen.
Monday’s rally in shares of Chinese after-school companies, spurred by a report that Beijing will issue new licenses, did not last long, indicating that investors expect China’s regulatory efforts to go further.
The weak outlook for 2022 of PayPal They add to concerns about the slowdown in e-commerce sales, which has caused their shares to fall more than 10%. Among other ‘winners’ of the pandemic, the manufacturer of home gym equipment Peloton Interactive is the worst performing on the Nasdaq 100 this year, down 67% and Zoom Video it is down 23%. For its part, e-commerce giant Amazon has risen 9.8% in 2021, notably below the 25% rise recorded by the Nasdaq 100.
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