Bullish Bells Ringing for Nasdaq-100

The NDX just ended its second-longest stretch above its 50-day moving average

Jun 28, 2017 at 12:52 PM
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Tech stocks took a major turn for the worse on June 9, and have subsequently struggled to resume their quest for all-time highs. In fact, just over two weeks after the tech-rich Nasdaq-100 Index (NDX) sent up a rare "buying climax" signal, the NDX yesterday rang a bullish bell that hasn't been sounded since 2014, with Google parent Alphabet stock leading a sector swoon after a record fine from the European Union. Below, we'll discuss why stock traders may want to buy the recent tech dip.

Schaeffer's Quantitative Analyst Chris Prybal pointed out that the Nasdaq-100 Index breached its 50-day moving average for the first time in 138 days -- or more than six months -- yesterday. That's the second-longest stretch above this trendline ever, with the longest coming in at 166 sessions back in mid-1995.

NDX chart 50-day

According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been just 12 times since 2000 that the NDX spent at least 63 sessions above the 50-day before a breach, the last two occurring in 2014. That's the longest stretch between signals since the more-than-three-year period from April 2000 to August 2003.

NDX breaches 50-day

Nasdaq-100 Index pullbacks to the 50-day moving average have marked major buying opportunities in the past. One week after a signal, the NDX was up 0.71%, on average, and was higher two-thirds of the time. That's about six times the index's average anytime one-week return of just 0.12%. Two weeks after a signal, the NDX averaged a gain of 1.02% -- roughly four times the norm -- with a slightly higher percent positive.

It's the same story when looking one month after a signal, with the NDX averaging a healthy gain of 2.53% -- about five times its average one-month return of 0.48% -- and higher three out of four times. Three months after a signal, the Nasdaq-100 was up a whopping 5.12%, on average, and higher two-thirds of the time. That's about four times its average three-month return of 1.25%.


NDX after signals

So, if past is prologue, the NDX could be on its way to record-high territory in no time. In fact, the Nasdaq-100 Index was last seen 0.8% higher at 5,715.96, thanks to a broad-market stock rebound. Outside of the NDX, a recent oil signal could point to higher highs ahead for the S&P 500 Index (SPX), too.

 

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