There has been a bit of discussion around blowout tops and the Nasdaq is doing a good impression of one (as is the Semiconductor Index). While we can look at the gap run over the past few days, we can also look at the relationship of the index to its 200-day MA.
In the case of the Nasdaq, it sits 20.4% above its 200-day MA, which only puts it in the 10% zone of extreme historic price action; at 21.4% it will be in the 5% zone, and 28.9% sticks it into the 1% zone. The 1% zone is a screaming sell, but the 5% zone, last seen in January 2021, is another.
For the record, the January 2021 extension wasn’t the absolute high – the index added another 10% before the year was out – but then it gave up 37% from that high. None of this is rocket science, but we need to be aware that this run is coming to an end sooner rather than later.
While we are not at the end of the week, the Nasdaq has tagged resistance on the weekly time frame. It looks toppy on this time frame too.
In the meantime, the Russell 2000 (IWM), has morphed from a breakout into a trading range pattern. Wednesday’s selling came off the back of distribution level selling volume, with a return to net bearish technicals. The index is also sharply underperforming relative to the Nasdaq, but I would look to this to mean-revert.
The S&P 500 is likely to die by guilt by association. It also experienced a distribution day, and sits 12.9% above its 200-day MA. It’s not as extended as the Nasdaq, but is unlikely to survive when sellers hit the latter index.
Bitcoin’s struggles continue. The cryptocurrency has again tagged its 200-day MA and is unlikely to survive a second test coming so close together. Technicals are mixed, with only the MACD on a ‘buy’ trigger. But until the 200-day MA is lost we have to give bulls the benefit of the doubt.
If you own tech stocks, now is a time to sell, particularly for stocks like Nvidia (NASDAQ:NVDA). There is no reason to ride this down, and most holders of the stock will be in well-in-the-money. You can always buy them back when they trade below their 200-day MA, or better still, find the next hot thing…
