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Don't Bet Against the 'Stretched' Nasdaq 100 By Brett Eversole
We've moved on from people thinking the rally is a farce... Now, they think it's just too much. This has become one of the main arguments against the bull market in recent months. At first glance, it's a reasonable stance – especially when you look at the Nasdaq 100 Index, the home of the largest and most dominant tech companies... The Nasdaq 100 jumped nearly 55% last year. Today, it's still up double digits from its early 2024 low. Those are massive returns... the kinds that make the bears question if the rally can continue. What's more, the recent rally also pushed the Nasdaq 100 into a rare setup... We'd normally expect the bears to be right about this move. But in this case, history shows it can lead to a 16% rally over the next year. And it means the "it's just too much" crowd will likely be proven wrong once again. Let me explain...
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Watching the overall market trend might be the simplest – but most valuable – action you can take as an investor. Stocks that are rising tend to keep rising. And if you follow the trend, you'll do darn well. An easy way to track the trend is with moving averages. Today, we're looking at the 52-week moving average. This takes the average of the last 52 weekly closing prices for a measure of the long-term trend. When stocks trade above this level, it's another clear sign of a bull market. That's the case right now. Every major stock index is well above its moving average. And the same is true for the Nasdaq 100. Take a look... The index has stayed above its 52-week moving average for the past year. If you bought back then, you've likely done well. But the "it's just too much" crowd sees the current spread above that moving average as a bad sign. You see, the Nasdaq 100 recently stretched more than 21% above this moving average. That's a massive departure... And it's giving some investors pause. It shouldn't, though. According to history, this is a strong buy signal... To see it, I looked at every new instance of the Nasdaq 100 moving 21% or more above its 52-week moving average. That has happened 27 other times since 1985. Here's what followed... 
The Nasdaq 100 has been one of the best wealth-generating investments over the past four decades. It led to annual gains of 13.6% in that time frame. But you can do even better by buying after setups like today's... Similar instances led to 7.9% gains in six months and 16% gains over the next year. Those are impressive returns, solidly outperforming a typical buy-and-hold strategy. Plus, the index ended the year higher 81% of the time. And a staggering 54% of the time, these setups led to gains of 20% or more. So, not only are gains likely... but big gains are also a strong possibility. Most folks will miss this opportunity. They'll see the stretched Nasdaq 100 and assume a correction is coming. But history shows a different outcome. We can expect more gains in the months to come... That's why now is a great time to put money to work. Good investing, Brett Eversole Further Reading Semiconductor stocks recently staged one of the biggest rallies we've ever seen. You might expect that a reversal is coming next. But according to history, the gains aren't over yet for this sector... Learn more here. Some folks are worried that only the largest stocks are driving the market. But one measure shows most of the market is surging today – not just the mega-cap stocks. And that broad-based strength is likely to continue... Read more here. |
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