Nasdaq 100 Entrenched in Indisputable Uptrend however Poor Market Breadth Is Ominous

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  • Nasdaq 100 has risen sharply this 12 months, boosted by the “synthetic intelligence frenzy, however the rally has not been homogenous
  • Just a few megacap tech gamers have been the primary supply of energy for the market
  • Overbought circumstances recommend a pullback might be coming quickly

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Most Read: Nasdaq 100 Outlook – Bulls Dominate however Pullback Looms, Bearish Signals to Watch

The Nasdaq 100 has rallied considerably this 12 months, bolstered by the “artificial intelligence” frenzy following the launch of ChatGTP, shrugging off quite a few macroeconomic headwinds, together with rising rates of interest, persistently excessive inflation, and rising recession dangers, to call a number of.

Companies engaged within the growth of AI or supplying semiconductors for its creation have reaped huge advantages, whereas companies with little or no publicity to this revolutionary know-how have lagged behind. It is subsequently not stunning that Microsoft, Alphabet and Nvidia have shined in 2023.

With mega-cap tech being the primary supply of bullish impetus, the market-cap weighted Nasdaq 100 (NDX) has dramatically outperformed its equal-weighted counterpart (NDXE), with the previous up 27% and the latter gaining simply 14% YTD. This divergence could be appreciated within the chart beneath.

Nasdaq 100 (Market-Weighted) vs (Nasdaq 100 Equal-Weighted)

Source: TradingView

The chart above is evident proof that breadth has been slim underneath the floor – an indication of poor market internals. This means a number of huge names within the fairness house are skewing outcomes and masking the uneven efficiency. For a rally to be sturdy, robust participation is important.

Another troubling growth is the disconnect between bonds and shares. In latest weeks, the FOMC’s financial coverage outlook as mirrored by the Fed funds futures has turned extra hawkish, with merchants pricing out the easing that was discounted for the second half of the 12 months after the banking sector disaster.

Despite the hawkish repricing of rate of interest expectations, the Nasdaq 100 has continued its trek upwards, stunning buyers and reaching its finest ranges since April 2022. This dislocation is unlikely to final lengthy.

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Nasdaq 100, Fed Funds Futures Implied Yields and Treasury Yields Chart

A picture containing text, screenshot, diagram, plot  Description automatically generated

Source: TradingView

From a technical standpoint, the Nasdaq 100 is entrenched in an undisputable uptrend, with costs forging larger highs and better lows, whereas additionally buying and selling above key shifting averages. However, merchants ought to train warning because the market seems stretched and overbought in line with the 14-day RSI.

The chart beneath reveals that the final 4 occasions the relative energy index yielded excessive overbought readings close to or above 70, a pullback occurred shortly thereafter. If historical past is any information, sellers may quickly regain the higher hand.

In the occasion of a setback, preliminary assist seems at 13,750. A transfer beneath this ground may supply an extra sign {that a} deeper retrenchment is within the offing, with the following draw back goal positioned close to 13,350. On additional weak point, the bears’ crosshair might be set on the psychological 13,000 stage.

On the flip aspect, if the Nasdaq 100 sustains the latest breakout and stays above 13,750, the bulls may turn into emboldened to launch an assault on 14,370 over the approaching weeks, a significant resistance space created by the 61.8% Fib retracement of the 2021/2022 hunch. This, nevertheless, is the baseline case.

of shoppers are internet lengthy.

of shoppers are internet brief.

Change in Longs Shorts OI
Daily 14% 3% 7%
Weekly -11% 5% -1%


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Nasdaq 100 Futures Chart Prepared Using TradingView

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