The Nasdaq 100 index outperformed every other index in 2020. It was the fastest one to recover from the March dip and advanced ever since. Even the current consolidation looks like just another continuation pattern – a triangle.
However, the recent developments in the health crisis may trigger some investors pulling out some funds from the tech sector. The announcement of positive COVID-19 vaccine results triggered a market euphoria on many sectors that lagged the Nasdaq – e.g., the banking sector.
That buying did not appear on the Nasdaq 100 index. Just the opposite – the index corrected. The big question now is if this triangle acts as a continuation or as a reversal pattern?
This week’s value stocks outperformed growth stocks by a mile. This led to the Nasdaq 100 index correcting from the highs, and many investors wonder if a rotation from growth to value has just started. If that is the case, there would be more pressure on the tech sector in the days/weeks ahead.
If we look at how traditional safe-haven assets have performed, we see that gold dropped significantly on the vaccine announcement. Hence, if investors dump safe-haven, it would be fair to assume that some of that safe-haven was priced in the tech sector as well, as the best performing sector during the health crisis so far.
The technical perspective shows a triangle, but traders should be aware that the triangular scenario works only on the downside. In this case, the break of the upper edge may be bullish, but it makes the pattern a flat, not a triangle. However, a bearish triangle does have such a piercing of its upper edge.
As such, both bulls and bears may trade the pattern. Bulls may want to wait a break above $12,400 to go long with a stop at $11,000 and target a 1:2 rr ratio. On the other hand, bears may want to see the lower edge of the triangle broken, before going short with a stop at $12,200 and targeting a similar rr ratio.
