The tech-heavy Nasdaq 100 (NDQ) is sitting in an interesting position, testing an all-important line of price support. And whether the line holds will give you a better idea of how US growth stocks will do going into the end of the year.
The chart shows how the 200-week moving average (white line) has been a line in the sand for the Nasdaq (red and green bars) for more than 20 years. Whenever it’s decisively broken below that support (red circles), it’s led to a significantly sharper decline. It happened in February 2001 (dotcom crash) and in September 2008 (global financial crisis), when the index collapsed a further 60% and 40%, respectively. On the other hand, whenever the index has bounced off the moving average trend line (green circles), it’s often marked the start of a major rally. It did that in early 2020 after the Covid crash, for example, shooting up about 150%.
But that was a different time: there was no inflation problem, and the Federal Reserve’s lower interest rates and massive bond-buying programs were enticing the kind of investment that would catapult the index to loftier heights. The central bank is doing the opposite now, raising interest rates and reining in that liquidity. Still, many big funds, traders, and trading algorithms will be monitoring the 200-week moving average over the next couple of weeks. And if the index is still above that key line at the end of those weeks, they’ll be betting for a big rally into the end of the year. The Invesco QQQ ETF (ticker QQQ; expense ratio: 0.20%) is an easy way to track the Index in that scenario. But if the Nasdaq breaks below the defense line, you might want to hold off: growth stocks could get a whole lot cheaper in that case.
