Stock Market Outlook: Rare Bullish Signal in Nasdaq Suggests More Gains Ahead
The Nasdaq is sending investors a message: the tech stock rally might be about to enter a brand new bullish phase.
The Nasdaq Composite appeared to flash a rare bullish signal this week as the tech-heavy index gained more than 1% for four straight trading days. That winning streak has only been seen a few handful of times in history, with just 17 other instances of “back-to-back-to-back-to-back” daily gains since its inception in 1971, according to an analysis from Bespoke Investment Group.
Historically, four straight days of 1% gains have been a strong signal for tech stocks. After flashing the signal, the Nasdaq Composite has typically seen above-average returns for the next year, posting an average gain of 29% over the next 12 months, Paul Hickey, the co-founder of Bespoke, wrote in a client note on Tuesday.
The case for stellar returns is further strengthened by the fact that the Nasdaq Composite remains within 5% of its 52-week high, Hickey said. In past instances when the index flashed the signal and was close to its 52-week peak, median 1-year returns clocked in at over 40%.
“The fourth time is the charm as it finally breaks out of that grip,” Hickey said of the recent rotation that’s battered the tech sector.
Tech stocks have been tested recently as investors have taken profits in some of the market’s best-performing stocks, but now appear to be rotating back into the tech sector at a discount. Most of the Magnificent Seven stocks jumped on Tuesday in a huge risk-on move, with the Nasdaq Composite and Nasdaq 100 ticking higher through early Wednesday before giving up some of their latest gains.
The Nasdaq 100 index also reclaimed its 50-day moving average this week, another key technical level closely watched by investors.
