Longer-Term Technical Indicators Remain Bearish on the Nasdaq

The Nasdaq 100 Stock Index ($IUXX) (QQQ) remains below its 200-day moving average, a closely watched indicator for longer-term momentum trends.  The Nasdaq 100 has been below its 200-day moving average since April, a 173-day streak that is the longest stretch in 20 years.

Many analysts and momentum-based traders remain bearish on the Nasdaq 100 until it can break above its 200-day moving average.  ICAP Technical Analysis said it is a warning signal that the Nasdaq has been below its 200-day moving average for such an extended period, saying, “the only other times with a streak this long have involved major recessions, so there’s clearly a negative message being sent with this price action.” 

The current stretch of the Nasdaq 100 being below its 200-day moving average is the third longest in the index's history.  The two longer stretches were:  (1) a 219-session stretch in 2002 after the dot-com bubble burst, and (2) a 167-session stretch that ended in 2009 following the aftermath of the financial crisis.

A failure to break above the 200-day average reflects the market’s doubts about the prospects for a near-term stock market recovery.  The Nasdaq 100 index is down -29% year-to-date, although it is at least up by +10% from a 2-year low in mid-October. 

Major components of the Nasdaq 100 index, including Amazon.com (AMZN), Alphabet (GOOGL), Nvidia (NVDA), and Meta Platforms (META), have all underperformed, keeping downward pressure on the index.  In addition to concern about slower revenue growth for technology companies, the Fed has aggressively raised interest rates, which has compressed the valuation multiples of technology stocks.

Not all technical indicators are bearish on the Nasdaq 100, however.  In fact, 47% of the stocks in the index above their 200-day averages, up from only 8% at the end of September, which is a positive for market breadth. 

Also, more than 70% of the Nasdaq 100 stocks are above their 50-day moving averages, up from a September low of 3%, which is a bullish indicator for short-term momentum. Granite Wealth Management said, “the 50-day average has held as support during the last couple of drawdowns, and that sets us up for the Nasdaq to make an attempt at the 200-day average next year. Breaking above that would represent a major change in trend, and we think investors would chase that momentum by jumping back into Big Tech.”

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