Nasdaq 100 jumps to record as dismal data quietens taper talk

Summary:

Bad news for the economy was good news for the Nasdaq 100. The tech index surged to its best-ever close following yesterday's disastrous PMI print.

Bad news for the economy was good news for the Nasdaq 100 yesterday. The tech index surged to its best-ever close following the disastrous PMI print. Last week, China’s wobble and taper fears rocked global indices and sent the Nasdaq tumbling below 15,000. However, that was last week, and this week it’s business as usual for the bulls.

All eyes were on yesterday’s PMI data from the states. A good set of numbers would surely up the pressure for the FOMC to begin tightening sooner rather than later. However, the opposite proved true, and the manufacturing gauges came in well wide of the mark. US Manufacturing PMI dropped to 61.2, below the expected 62.0, and sharply lower from July’s 63.4. Services PMI painted an even bleaker picture, sinking to 55.2 vs 59.2 expected, and July’s 59.9. As a result, the US Dollar was slammed lower, sending Gold back above $1,800 and lighting a fire under the Nasdaq 100. Which, at Monday’s 15,334 close, has improved by more than 600 points (4.2%) in the last three days.

How high is too high?

A quick look through the numbers highlights the magnitude of the index’s performance over the last 18 months. The Nasdaq 100 is up 19% since the start of the year. Just over 130% higher from the March 2020 low. And almost 60% above Feb 2020s, former all-time of 9,617.

Clearly, conditions during this period have been unique, to say the least. The Fed’s huge balance sheet expansion has fuelled remarkable rallies in risk assets. And in none more so than the Tech growth stocks that fill the Nasdaq 100. But the question is, can the index keep going up?

Whatever the view on the sustainability of the rally, the technicals remain favourable. After dropping to within 6 points of the 50-day moving average at 14,709 last week, the index is now well clear of the indicator. This is, therefore, a key level to watch. However, ahead of that, the previous ATH at 15,186 is the immediate support. In terms of resistance, there isn’t any. This market will turn when the last of the shorts have been covered, and the new buying dries up. And considering last weeks weakness, shorts may still have some buying to do.

As long as the Nasdaq remains above the 50 DMA, I would consider the uptrend intact. But should the price fall below 14,700, a decline to the 100 DMA at 14,330 should follow.