This Rare Setup Means the Nasdaq Boom Can Continue

The first half of 2023 – at least in the investment world – was one for the ages.

Stocks absolutely soared. The S&P 500 Index was up 17%. But that was nothing compared with the tech-heavy Nasdaq 100 Index. It was up 39% in the first half of 2023... nearly 2.5 times the S&P 500's return in the same time frame.

That massive gain has the index stretched to a rare level. You might think that would hurt future returns. But history shows a different outcome.

Instead, this rare setup means the gains will likely continue. And we could even see 23% upside over the next year.

Let me explain...

With nearly a 40% jump in just six months, no wonder prices feel stretched to the upside.

You might think that tech stocks have risen too far, too fast... and that a fall to earth is imminent. But in the case of the Nasdaq 100 today, that's not a smart bet to make.

To see this, I looked at the index versus its long-term trend, or 200-day moving average (200-DMA). That's simply the average of the last 200 closing prices.

The index is in an uptrend if it trades above the moving average. Below that level, the index is in a downtrend. And longtime DailyWealth readers know you want to buy when the trend is in your favor.

We also know that as the price moves further above the 200-DMA, the risk of a snapback increases. So being too high above the long-term trend seems scary. And right now, the Nasdaq 100 is massively above that level. Take a look...

The Nasdaq 100 was more than 20% above its long-term trend line for most of last month. It hit 24% at its peak. And that's a crazy reading, considering the long-term average is around 4%.

To see what that means going forward, I looked at every new instance of the index hitting 20% above its 200-DMA since 1985. This has only happened 15 other times. And it has a history of leading to fantastic returns. Take a look...

The Nasdaq 100 has an impressive long-term track record. It has led to 13.5% annual gains over the past four decades. And surprisingly, you can increase those returns by buying when the market stretches above the long-term trend like it's doing today.

Similar instances led to 7.3% gains in three months, 12.9% gains in six months, and 22.9% gains over the next year. That's fantastic outperformance.

What's more, this isn't what we'd expect to see. Typically, this kind of setup would lead to a slowdown in returns. But in this case, it tells us that the uptrend is on fire... and that it'll continue.

In simple terms, the market is firing on all cylinders right now. You can choose to fight it and look for reasons not to invest. Or you can accept reality and get on board. I recommend you do the latter.

Good investing,

Brett Eversole

Further Reading

"The S&P 500 has staged an incredible rally after last year's pain," Brett says. Like tech stocks in particular, the entire market has been on the rise. Investors are still on edge, but history tells us that the bears will miss out... Learn more here.

"Just owning stocks is one of the simplest and most profitable long-term investments you can make," writes Brett. But buying at the right time will boost those gains – and the opportunity is in place right now. Read more here

Market Notes



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