The NASDAQ 100 initially fell on Friday but turned around to show signs of strength again as we closed at the very highs of the trading session. More importantly, we have recaptured a trendline that had previously been so important, and now it looks as if we are going to print the all-time highs rather soon.
If you think about it, this does make sense as interest rates in the United States continue to be low, and low interest rates tend to favor growth stocks. The NASDAQ 100 really should be renamed something like “NASDAQ 10”, as it is only a handful of stocks that truly move the thing. Those are all of the biggest growth companies in the world, such as Amazon, Google, etc., so it is only a handful of stocks that you need to get right in order to get this index correct. They all tend to do well in a low interest-rate environment, so there you go: it is a bit of a feedback loop.
Furthermore, the Federal Reserve has no interest in letting anybody on Wall Street lose any serious amount of money, so they will step in and provide liquidity and support measures anytime they are called upon. Over the last 48 hours, we have dropped down to the 50-day EMA where algorithmic programs kicked in and start buying the index as well. The 50-day EMA is somewhat reliable on this index over the longer term, so it is most certainly worth paying close attention to.
Now that we have recaptured the uptrend line, it is probably only a matter of time before we recapture the all-time highs. At that juncture, I would anticipate that the 15,250 level is next, followed by the 15,500 level over the next couple of weeks. As far as selling is concerned, I would not do so, because you cannot sell US indices for any significant amount of time. However, if we break down below the 50-day EMA, I might be convinced to start buying some puts, because at that juncture you can at least keep your overall risk mitigated to your initial purchase price. To flat out short the market is dangerous, as the Federal Reserve will not let it fall too far. All one needs to do is look at the longer-term chart to see which direction the market will go over the longer term.