Every time the Nasdaq hit its 200 day moving average (200 dma), since last February, it sold off heavily. Today, the Nasdaq is touching its 200 dma for the third time (we count touches per 7 trading days). Is this time to sell heavily… or is this time different? Our 2023 forecasts suggest either this time or next touch will be different, this market wants to move higher, not lower, based on data available at present day.
This market is slow, very slow.
But it is improving, slowly, very slowly.
If we carefully look at the structure of the Nasdaq, we see this series of reversals which, altogether, start creating a long term bullish reversal. This is not a runaway market, this market is not ready for a big momentum move. Again, it is slowly but surely improving.
The chart in this article shows the Nasdaq 100 index (futures) with the 200 dma in orange and the 66 dma in green. As seen, the market was able to print a bullish reversal right below the 200 dma, since September last year.
As the 200 dma is falling (still not flat) the structure below the 200 dma is improving.
Because of this, we start seeing that this index is starting to spend more time above its 66 dma. Again, it’s a slow process, but it’s happening.
All this may sound strange, counter-intuitive, which is fine. We addressed this in Tech Stocks Attempting To Take Over Leadership, Really?
The narrative that sold easily was the bearish narrative. From a psychological perspective, it makes so much sense that this bearish narrative sells easily simply because the most recent emotion in investors’ mindset is fear and uncertainty.
Remember, the inner system of humans remembers most vividly what happened in the most recent past. It associates that particular emotion with the current environment.
One really important success factor for investors to master is to become emotionless, sort of detached. Not easy, though.
The first signs of leadership of tech stocks are there. It’s not visible, it happens from time to time. It should start happening more often, spread over the next 2 to 3 months. We pay attention to these early signs of improvement, do you as well?
Our expectation is that the Nasdaq 200 dma will be extensively tested for the next 4 to 8 weeks. There will be pumps and dumps, confusing and sidetracking both bulls and bears. The market will decide on a direction, not later than March 24th, 2023, is our thinking. We believe the direction will be higher, because both market participants will be confused, exhausted, and frustrated.
Remember, the bull wants less participants, it wants to shake out first before running.
Maybe it’s a good idea to consider buying, especially on weakness, as opposed to selling on weakness.
In our stock market investing service Momentum Investing we took positions in several tech stocks, several weeks ago. Our tech stock selection revealed several gems, some of them hidden gems.
