Nasdaq Bull Market
More Upside Ahead
The stock market continued its hot start to 2023, with the S&P closing above its 40-week moving average for the second week in a row and the Nasdaq leading the charge.
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Early in the week, there was a slight pullback in the indexes, with the S&P filling a gap and the Nasdaq coming down to test its 21-day exponential moving average. These pullbacks were around 3.5%, which is in line with the average pullback after a breakaway momentum signal, which we discussed last week.
However, the S&P is currently still below a trendline that has been resistance in the past. Every time the market approaches this trendline, it sells off. This will be the spot where bears will be looking to initiate shorts. It's important to note that the market likes to surprise the majority, and often does the unexpected.
Let's take a closer look at the market activity over the past week to see why.
Last week, the market closed very strong, at the highs, and this had many people excited.
On Tuesday, the market initially moved higher luring in late buyers giving into FOMO, but then sold off and closed below the trendline.
On Wednesday and Thursday the pullback continued. This creates the perfect scenario for a move higher, which is not what the majority expects, they expect the trendline to be resistance once again.
On Friday, there was a follow-through day on both the S&P and the Nasdaq. This means that anyone who was stopped out earlier in the week from chasing extended stocks will be forced to buy again if there is follow-through from here and anyone who went short will be forced to cover, adding more fuel to the fire.
However, there is always the possibility that the market could sell off, but I personally expect more upside, especially from the beaten down Nasdaq.
Lately, the Nasdaq is showing more strength than the S&P, with a higher percentage gain since the January 6th follow-through day and sitting farther above its moving averages. Additionally, the Market Stop Light indicator shows that the Nasdaq has two green lights, while the S&P has a green market signal but a yellow net highs and lows signal. The percent of stocks above the 50 and 200-day moving averages also indicates that the Nasdaq is performing better than the S&P as of late.
The bulls are currently in control of the market and the Nasdaq is showing more strength than the S&P. For more detail on this and what stocks I will be watching next week watch the video below.
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The content presented is for informational and educational purposes only. Nothing contained in this newsletter should be construed as financial advice or a recommendation to buy or sell any security. Please do your own due diligence or contact a licensed financial advisor as participating in the financial markets involves risk.