The Tech Stock Rally Is Only the Beginning By Brett Eversole
Last year's most painful investment has turned into the big winner of 2023... Out of all the major indexes, the tech-heavy Nasdaq 100 Index took the worst beating in 2022. It dropped a crushing 33%. But the recovery since has been nothing short of impressive. The index is up 34% this year. That's nearly triple the gain of the S&P 500 Index. And this rally has heated up in recent weeks. The Nasdaq 100 broke out to a 52-week high in late May. That tells us the trend is on our side. But an even more powerful setup is hiding under the surface... And according to history, more gains are a near certainty. Let me explain...
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It's always smart to buy when the trend is in your favor. Sure, it might make you feel like a "bandwagon" investor – only diving in during the good times. But following the trend is one of the most predictable ways to make money in the markets. With the Nasdaq 100 fresh off a new 52-week high, the trend is up in 2023. That might come as a surprise to some, considering how badly tech stocks suffered in 2022. But last year's losing sector has become a big winner. The chart below shows it... 
The trend has turned higher. That alone is a great sign. But we can see something even more impressive once we do some digging... This was the first 52-week high in at least a year. And that's darn rare. Setups like this have only happened four other times since 1985. More important, it tells us that a greater boom could be underway... That's because this kind of move only happens after a prolonged bear market. Not hitting a new 52-week high for a year or more means that stocks have been falling for at least a year. And the breakouts that followed have been fantastic times to put money to work. To see it, I looked at the Nasdaq 100's performance after each similar setup since 1985. And each instance led to incredible profits. Take a look... The Nasdaq 100 has returned 13% annually since 1985. That tops the S&P 500's gains of 10.8% in the same time frame. But buying after instances like today's improves our upside even more... Similar setups led to 11% gains in three months, 12% gains in six months, and 18% gains in a year. That's impressive outperformance, even for an index where big gains are the norm. Even better is the solid track record... None of these situations led to a loss in any time period. In fact, they all happened in years that were great long-term buying opportunities... 1986, 1989, 2003, and 2009. It's easy to look at the boom in the Nasdaq 100 and assume you've missed it – or that it's a false rally after a punishing year, with more pain on the way. But history disagrees. Instead, the recent setup tells us that the bear market is likely done for good... that more gains are on the way... and that we want to own stocks right now. Good investing, Brett Eversole Further Reading This isn't the only signal pointing to more gains ahead for tech stocks. History shows that after a year of underperformance, the Nasdaq tends to rally. And given the strength of this year's surge, 50%-plus gains are possible as this bull run continues... Learn more here. "The S&P 500 Index broke a rare streak in recent weeks," Brett writes. This move shows us the trend is up. And after reversals like these, stocks tend to generate fantastic returns... Read more here. |
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