Testy Tuesday – Nasdaq Fails 4,700 and Moves Lower

Down we go again!

It’s important to have some perspective when contemplating the future so here is the Nasdaq’s chart for the 21st Century, so far.  I’m sure it’s not how you remember it because of something called a recency bias and it’s hard to imagine, after going up from 2,500 to 16,500 (560%) in the past 10 years, that the Nasdaq has done anything else in the past 20 years but, other than another silly 400% run we had from 1997 to 2000, we were essentially flat for the first 10 years.   

To some extent, “this time is different” – that’s what they said last time as well but now, as it was in 1999, what we can say for sure is there is no evidence in Corporate Profits that shows us that 15,000, let alone 16,500, is justified for the components of the Nasdaq.  In fact, earnings in Q1 have been a bit of a disappointment and, more Nasdaq companies benefit from Covid (stay at home, work remotely, cure infections, deliver stuff) than suffer from it (supply chain issues, less retail shopping).   This is their time to shine! 

Guidance, as you can see, is also a big problem, with Corporate Guidance now coming in at the worst since warning signs were flashing in 2008, ahead of a 66.6% correction.  As you have been seeing this season, notably with FaceBook – investors seem to have little tolerance for any company that is misstepping in either earnings or guidance – not at these lofty levels…

So, please turn your attention to the MACD line at the base of the Nasdaq chart.  This is a very common technical signal and it utilizes moving averages, which is the one TA thing I actually believe in.  Notice on the monthly chart, that we have only just begun to cross under the red line and even the relatively mild pullback of 2018/19 was 20%, which would take the Nasdaq from 16,500 to 13,200 – which is what we do expect to happen this month.

We are also letting a lot of things slide that won’t be able to slide anymore like 20% of US…

Provided courtesy of Phil’s Stock World.