Nasdaq 100: Tech Stocks Need Base Formation to Sustain Rally, Not V-Recovery

Nasdaq-100 Futures Pick Up Steam as Tech Rally Gains Momentum

The March E-mini Nasdaq-100 futures contract seems to be picking up steam as we head into the homestretch of today’s trading session. Although we still have to deal with the Fed minutes at 19:00 GMT, I read the statement, I listened to Chairman Powell and other speakers, and I saw last week’s labor market and inflation data. Unless there is something unexpected in the minutes, stock market investors seem to be comfortable with pricing in no rate cut in March and a 50% chance of a June cut.

Was the Selling Fed-Related or Just Coincidence?

I have to admit, however, that I am a little disturbed that the top at 26349.00 occurred the day the Fed made its last announcement. The subsequent break occurred when investors started dumping other risky assets like software stocks, gold, silver and bitcoin. Was the selling Fed related or was that just a coincidence? Was it just a leveling off of overpriced assets, collective profit-taking or just a tired index that didn’t have the buyers to officially challenge the record high at 26670.00?

Investors Stopped Leading with Their Money—They Want to See Profits Now

We could find out today if the Fed was the issue. I don’t think so because we didn’t see a similar move in the S&P 500 Index or the Dow Jones Industrial Average. What stands out for me when I look at all the markets that have collapsed since the last meeting is that investors weren’t leading with their money anymore. What I mean by that is they weren’t just loading the boat and hoping she floats.

In late January, after earnings season and the same day the Fed announced, investors were saying “show me the money”, or at least “show me how you are going to make money”. So the leveling off in the technology sector was reasonable to me. Throw in a few concerns about business destruction from AI and you have a market that failed short of a record high. One that sliced through its 50-day moving average and just missed hitting its 200-day moving average in less than a month.

Two-Day Rally Is Impressive, But What Have We Actually Learned?

Today’s Nasdaq rally is impressive. It’s always amazing to see how fast they turn and today’s rally is no exception. But what have we learned in two days? We’ve learned that investors like value, especially when overpriced stocks were said to be one of the themes stopping the index from making new highs. Throughout the nearly 44-year history of this bull market, the 200-day moving average has represented value several times.

Time to Build a Base, Not Race for New Highs

What we want to see the rest of this week is the 200-day moving average at 24379.78 continue to hold as support. Obviously, it would be nice to overcome the 50-day moving average at 25563.75, but we don’t want to blow out the candle too fast. Form a base, move sideways, create an elongated rectangular box, do something that suggests a bottom is forming.

If investors can take care of business by establishing support then I think the index will have a better chance of making a new record high. Trying to reach a new high by attempting to dig out of a hole created by lower-lows is proving too hard to accomplish and just keeps opening the door for short-sellers to sell rallies. I think it’s time to establish support.

More Information in our Economic Calendar.