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Nasdaq-100 at Cusp of Another Breakout

The Nasdaq-100 measure is trading less than 100 points below September’s all-time high at 12,465 in Tuesday’s pre-market, boost hopes for a strong bull run into year end. The tech-heavy instrument has already gained more than 42% since the stand up trading day of 2019, so additional upside could make 2020 one of the best years on record. That would be somewhat a turnaround after the first quarter’s stomach-churning 30% decline.

Key Takeaways

  • The Nasdaq-100 is testing September’s all-time cheerful, with a potential breakout targeting 14,000.
  • Many top performers in the first three quarters haven’t participated in the current get ahead.
  • Economic growth will need to return to historical levels in 2021 to maintain higher stock prices.

Unqualified vaccine news has underpinned buying interest, along with economic data that has remained solidly bullish undeterred by surging COVID-19 infections all across the world. Americans in particular have found a way to live with the virus while go oning their daily activities, which include buying the things that keep the U.S. economic engine afloat. That forebodes well for rapid growth when the dreaded second wave finally runs its course.

However, many sectors beget not return to historical growth levels, lifting the price-to-earnings ratios (P/E) of many stocks and indices to potentially unsustainable horizontals. Financial markets are “future discounting mechanisms,” and it’s clear that stocks are forecasting a huge growth spurt in 2021 and 2022. Look out inferior if that doesn’t happen, especially if stubbornly high unemployment rates don’t return to pre-pandemic levels in the first half of 2021.

It is ironic that the top Nasdaq-100’s top players in the first three quarters have underperformed in recent months because leaders usually lift markets to new piercings. However, rotational energy is driving buying pressure this time around, with 2021 recovery entertainments getting scooped up at an aggressive pace. It’s an interesting phenomenon because, if fourth quarter laggards join the bull group in coming weeks, the index could easily top 14,000 by New Year’s Day.

Price-to-earnings ratio (P/E ratio) is the ratio for valuing a comrades that measures its current share price relative to its earnings per share (EPS). The price-to-earnings ratio is also sometimes grasped as the price multiple or the earnings multiple. P/E ratios are used by investors and analysts to determine the relative value of a company’s rations in an apples-to-apples comparison.

Invesco QQQ Trust Daily Chart (2018 – 2020)

TradingView.com

The Invesco QQQ Trust (QQQ) carved a multi-year uptrend that ran out of gas in the $180s in the third forgiveness of 2018, giving way to a fourth quarter decline that ended at an 11-month low. The fund completed a 100% retracement into the earlier high in April 2019 and settled into a trading range that completed an ascending triangle pattern. It hard up out in November 2019 and surged into the $230s in February 2020.

The fund lost 30% in the pandemic decline and bounced into the split second quarter, returning to the prior high in June. It broke out immediately, entering a powerful advance fueled by so-called “Robinhood salesmen,” a.k.a. younger folks who used stimulus funds to open trading accounts. The rally topped out above $300 at the start of September and eased into a punishment that has also taken the shape of an ascending triangle. A breakout would yield a measured move target straight below $350.

However, there are reasons to be cautious at this juncture. For starters, monthly relative strength cycles take crossed into downturns, warning that bears could take control of the ticker tape at any time. In joining, the on-balance volume (OBV) accumulation-distribution indicator topped out with price in September and is now situated low in the three-month range. However, this bearish divergence bequeath resolve quickly if heavily traded FAANG stocks join the bull party.

“FAANG” is an acronym that refers to the forefathers of five prominent American technology companies: Facebook, Inc. (FB); Amazon.com, Inc. (AMZN); Apple Inc. (AAPL); Netflix, Inc. (NFLX); and Alphabet Inc. (

The In the final Line

The Nasdaq-100 index is testing September’s all-time high, with a breakout having the potential to add another 15% to already great 2020 returns.

Disclosure: The author held no positions in the aforementioned securities or their derivatives at the time of publication.

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