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Chart of the day: US tech stocks lead markets to make or break point

After the quickest fall into bear territory ever, US stocks have had a bullish run. The US Tech 100 Index (NAS100) has caught our eye as the tech sector leads markets to a make or break point. Is this all just bearish noise and a temporary relief rally, or is this about to be the shortest bear market in history?

NAS100 chart
"Daily chart: NAS100 closes above the downtrend since Feb highs as well as the 38.2% Fib retracement of the Feb-March selloff."

We got some bullish signals from the NAS100 on yesterday’s daily candle as markets shrugged off the highest weekly jobless claims number in history. The tech index pushed to a lower low than the day prior before powering on to a new high. The index broke through the downtrend (red line) since 20 February and closed above 7815.00, the 38.2 Fib retracement of the Feb-March selloff. 95% of stocks on the index moved higher yesterday.

There’s no denying that the technicals are compelling, but is this really something we want to chase higher?

Volume is concerning

Volume traded through the NASDAQ yesterday was light, 15% below the 30-day average. This does raise concerns as one would expect to see volume higher in a normal rally. Illiquidity can lead to exaggerated market moves. Big intraday swings up and down are all part of a bear market as investors struggle to accurately put a price to anything. A telling sign that this is all bearish noise would be the NAS100 slipping and closing back below the downtrend.

We’re watching the S&P 500

The S&P 500 (US500) is a broader gage of US equities and yesterday posted its biggest three-day run since 1933. That said, the US500 has found resistance at 2641, its own 38.2 Fib retracement of the selloff, and has so far been unable to push higher. The after-hours market had a run at the level this morning but is cooling again in the early Asian session.

Whereas if the US500 can break above that 2641 level, it’ll be a bullish signal for the NAS100, which could ride higher to the 8300 or even 8500 handle.

Weekend risk

Running positions into the weekend in these markets is a tough move. Whether long or short, there’s considerable gapping risk while markets are closed for the weekend due to high volatility and newsflow that can change so quickly.

The USA is now the global virus epicentre with more cases than any other country. Markets have priced in a dire situation, but as cases ramp up in the world’s biggest economy, price action will correct lower if the outbreak becomes even worse than anticipated. We’re also likely to see more government and central bank announcements over the weekend, which can propel price action higher or lower on the Monday open.

Stock prices don’t represent the economy today, they represent the economy in the future. So we’re at a make or break point here: if the outbreak causes more havoc than markets have already accounted for and not just Q2 but Q3 also starts to look dire, price action will need to correct lower.

If you are holding positions into the weekend, do balance your risk and make sure position sizes are appropriate. All the best out there.

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