Market News
A huge bull run on NASDAQ futures looks increasingly tired
The NASDAQ’s impressive 2023 rally faces potential exhaustion, with signs such as declining market breadth, other markets’ struggles, and technical indicators suggesting a correction. A pullback could provide a reset, impacting broader markets and investor sentiment.
A Huge Bull Run on NASDAQ Futures Looks Increasingly Tired
The NASDAQ 100 futures have rallied an extraordinary 35% in 2023, reaching a peak of 14,570. However, several factors suggest the rally may be losing steam:
• Safe haven demand for tech stocks may have peaked.
• Market breadth shows only a few stocks driving gains.
• Other major indices are underperforming.
• Technical indicators point to exhaustion.
Resolution of the Debt Ceiling May Not Help Tech Stocks
The US debt ceiling resolution has relieved market stress and fueled a risk-on rally. Big tech stocks like Microsoft, Alphabet, and Nvidia have led the charge, benefiting from safe haven flows even as Treasury yields rise. However, with the debt ceiling uncertainty behind us, this flow could reverse. The dominance of growth stocks over value stocks might begin to shift, especially with Meta and Nvidia already posting year-to-date gains of 120% and 159%, respectively.
Market Breadth Is a Warning Sign
The rally in the NASDAQ is not as robust as it appears. Advance/Decline lines for the S&P 500, Dow Jones, and NASDAQ Composite are showing weakness. Even the NASDAQ 100’s Advance/Decline line has stagnated recently. This divergence warns of an unhealthy rally, driven by a narrow set of stocks. While not an immediate sell signal, it raises caution about the rally’s sustainability.
Other Major Markets Are Struggling
While the NASDAQ surges, other markets face challenges:
• The Dow Jones and FTSE 100 lag significantly due to central bank hawkishness and recession fears.
• European indices like the DAX and CAC are teetering on corrections.
• The S&P 500’s gains are tech-driven, leaving broader indices behind.
A correction in the NASDAQ would likely ripple through other major markets, amplifying concerns.
Technical Signals Point to Exhaustion in NASDAQ Futures
The NASDAQ 100 futures are showing signs of fatigue:
• The futures are approaching the top of an uptrend channel, which may act as resistance.
• Daily RSI has faltered above 70, a signal of potential pullbacks. Similar patterns in February and April led to corrections of 4% to 10%, with RSI unwinding to 40/45.
If this scenario repeats, the NASDAQ futures could pull back into the 13,350–14,000 range, providing a healthy reset for investors.
Conclusion
The NASDAQ’s rally has been extraordinary but increasingly looks overstretched. Market breadth, the resolution of the debt ceiling, and technical signals suggest a correction is on the horizon. While not a bearish outlook, a pullback could offer a much-needed opportunity for the market to recalibrate.
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