Index in focus: Nasdaq 100 (US Tech 100) probing record highs amid earnings maelstrom
Matt Weller, CFA, CMT October 26, 2021 12:48 PM
The five FAAMG stocks all report earnings this week, and together, those five stocks alone account for 40% of the Nasdaq 100’s assets...
In an inversion of many traders’ perceptions, the tech-focused Nasdaq 100 index has actually been lagging its “stodgy” US index rivals, the Dow Jones Industrial Average and S&P 500, in recent weeks. Both the other popular US indices broke out to fresh record highs late last week, but the Nasdaq 100 is just testing its equivalent highs today.
As we outlined in our “Big Tech” earnings previews (here and here), the five FAAMG stocks all report earnings this week, and together, those five stocks alone account for 40% of the Nasdaq 100’s assets. Unfortunately for bulls, yesterday’s mixed release from Facebook (FB) is leading to a -4% decline in that stock and preventing the index from conclusively breaking out above previous resistance at 15,675, though Tesla’s big surge is offsetting some of that bearish momentum (see chart below). Over the rest of the week, traders will key in on the releases from MSFT and GOOG this afternoon followed by AMZN and AAPL on Thursday.
From a technical perspective, the Nasdaq 100 is showing a clear bearish divergence in its 14-day RSI indicator at recent highs, signaling waning buying pressure. That said, the index did manage to hold above both its bullish trend line and the 50- and 100-day exponential moving averages, keeping the uptrend intact:
Source: TradingView, StoneX
Looking ahead, this week’s earnings reports will go a long way toward determining whether the tech-heavy Nasdaq 100 breaks out to new highs and extends its uptrend toward 16,000 or whether the momentum divergence will lead to a significant top and break of support in the 15,000 range.
With a history of these companies “underpromising and overdelivering” on earnings and the long-term trend still pointing higher, the odds may favor a breakout and continuation from here, but it always pays to remain flexible as a trader.
Stay tuned to our twitter account for the latest earnings updates and levels to watch on major indices throughout this week and beyond.
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