The Nasdaq-100 Could Be Ready to Fall. Here’s Why.
What goes up must come down. The Nasdaq-100 Index is due for a drop, according to Jonathan Krinsky, managing director of Bay Crest Partners.
The Nasdaq-100 is composed of the 100 largest of the 3000 stocks trading on the Nasdaq exchange. Over the past three months, the Nasdaq-100 has gained 16% to 9517.86 at market close on Tuesday.
The Nasdaq-100 has a long history of outperformance, but after gains this large, the index is often set up for a fall. “Betting against this index over the medium- and long-term is usually a losing proposition,” Krinsky wrote. “There are certain times, however, when the risk-reward on a tactical (2 to 8 week) basis appears quite poor.”
Krinsky thinks that time is now. He notes that the Nasdaq-100 has not had a 3% drawdown in 82 days. Furthermore, it is currently 17% above its 200-day moving average, the mean of the closing prices for the past 200 days, after closing above 16% on January 23rd.
Krinsky believes this is an important trading indicator, signaling a fall from the peak to the trough in the near future.
When modeling data, Krinsky took note of the seven times since 2000 that the Nasdaq-100 has reached at least 16% above its 200-day moving average for the first time in a month and was within 3% of a 52-week high. He omitted when this occurred in May 2003 and September 2009 because the market was emerging from recessions. All of the other five times led to two-month negative returns, with an average drop of 4.6% and a median decline of 3.4%.
Based on these precedents, Krinsky foresees an upcoming dip.
Another key indication that a downturn could be coming is the PHLX Semiconductor Sector (SOX) index, which has served as a leading indicator for the Nasdaq-100 for both rises and dips, Krinsky wrote. It has “underperformed” the Nasdaq-100 more than 7% since late December, leading Krinsky to highlight it as a potential alarm bell.
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https://www.barrons.com/articles/the-nasdaq-100-could-be-ready-to-fall-heres-why-51581510600
