pool adsWhat is Driving the NASDAQ 100 $NDX, and What Should We Do?
Investors look for an edge all the time. We want to know what’s going to happen before it happens, so we can position ourselves properly. Sometimes, that requires looking behind us too. Recently, there has been a tangible coincidence that should be observed, and that could be reversed.
The Day after Memorial Day, less than one week ago, the NASDAQ 100 (NYSE: NDX) was at 6900. On Monday, 6.4.18, the NDX was over 7100. That is a 200-point increase in 5 trading days. That 2.8% surge was lead by technology, and shares of Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ: AMZN) were all up nicely, but Facebook (NASDAQ: FB) was a standout. FB was up 5.4% over the same timeframe.
The question is, why the sudden rally?
Last week, European tensions started to escalate. Italy was obviously a focal point, but the tensions were not isolated. Those tensions caused investors to re-think equity positions held in Europe. Italy ETF (NYSE: EWI) fell by about 8% the day after Memorial Day, for example. When that happened there was a ripple effect, and discussions about the collapse of the EU started to circulate.
Reasonably, whenever we get sudden 1-day drops like what happened in Italy we are bound to get exaggerated fears, and we saw plenty of those on the other side of the pond last week. Then, investors who made the decision to pull money out of European Equities were left looking for a home.
In institutional circles at least, the conclusion was that the United States did not have the same concerns as Europe seemed to have, and it was, at least then, a better place for the money. The target for those investment dollars also seemed to be large cap tech.
In the effort of full disclosure, our Sentiment Table Strategy was long the Leveraged Short ETF for the NASDAQ 100 (NYSE: QID) going into Memorial Day, and it sold the position for a 2% gain the Tuesday after Memorial Day. Our Swing Trading Strategy bought the Leveraged Long ETF for the NASDAQ 100 (NYSE: QLD) when 7030 broke higher in the NDX last week too, but something very interesting has also happened in the NASDAQ 100.
When the NDX tested 7125, a major resistance level and inflection point, our Swing Trading Strategy took the 2.5% gain it was holding and turned short. QID was purchased near 7125.
The push higher in the NDX needed to be respected, but so does this major resistance level. 7125 is a critical level of resistance for the NDX.
The interesting twist is that Europe is suddenly looking much better than it did last week. If investors begin to feel as if they made rash decisions last week, and that they may be overexposed to Technology, there easily could be a move back to European Equities.
Regardless, we are respecting longer term resistance levels in our Strategies. Longer term resistance is also being tested in the DOW and SPX. Do not be a Bull in Headlights.
Support and Resistance Plot Chart for AAPL
Blue = Current Price
Red= Resistance
Green = Support
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