The stock market rally appears to be rotating toward tech growth plays after a long break. The NASDAQ hit a bear market closing low as recently as Dec. 28. But in 2023, the NASDAQ is up 6.4%. The SMH chip ETF has rallied 12%, the IGV software ETF 5.5% and the speculative ARKK 16.8%. This is a clear risk-on signal. What’s driving the tech growth revival?
Treasury yields are falling, a positive for highly valued growth stocks. Meanwhile, there are hopes for an economic soft landing, as China and Europe improve and as Fed rate hikes appear close to a peak. That raises bets that much of the bad news is priced in for growth stocks
The Russell 2000, another risk-on play, is nearly even with the NSASAQ, up 6.1% in 2023.
The S&P 500 has climbed 2.5% to start the new year. The Dow Jones has edged up 0.7%, and only positive thanks to Friday’s solid gain.
From the NASDAQ daily chart below, we can see a triple bottom formation. The mid-October low was tested on 11/04/22 and then was tested again on 12/28/22. The year-end selloff pushed the price to fall below the lower channel line, but the selling didn’t have follow through. When it climbed above the lower channel line on 01/06/23, the shorts were forced to cover and therefore it rallied 6.4% for the year.
The big earnings reports over the next two weeks are tech heavy, we believe the earnings will not be as bad as feared because the triple bottom formation on the NASDAQ says so. The price action is leading the fundamentals. The market is anticipating not so bad earnings by forming a triple bottom support level.
The Fed meeting is looming over the market in the next week and half. The breakout probably will not happen before the Fed meeting on Feb 1, 2023. If the Fed raises only 25-basis-point on Feb 1, 2023, the market will believe that the Fed is very close to the end of the rate hiking cycle. Yes, they will stay at the higher rates for some time, but the market loves certainty that rates are not going any higher. They can start to price things based on a stable interest rate.
Tesla will report earnings next week. The TSLA chart is positioned to go higher, it may reach 50-day moving average around 154. Perhaps all the bad news have priced in. It will be a long wait for TSLA to reach its old glory, but still it is a good trade once the bullish trend is established. The same applies to the NASDAQ. The odds of the NASDAQ reaching its old all time high is slim this year, but it is a great trade to go long from the mid-October low point of view.
In the entire duration of the easy money fueled bull market from 2009 to 2021, all corrections were very brief. Now this stretch (November 2021 to October 2022) of correction has been the deepest and longest since 2009. The fundamentals have changed, the Fed was forced to tighten the money supply rapidly because inflation was out of control. In the recent days we have seen the mega tech such as Amazon, Microsoft and Google were laying off massive amount of workers. This is in respond to the new tighter monetary policy.
The grand secular bull stock market started in 1982. If add 51.6 years to 1982, it will get us to the year 2033. 51.6-year is the length of a Kondratiev wave. It’s 12 years from 2009 to 2021. If we add another 12 years to 2021, it will get us to 2033 as well. So we believe the secular bull market has another 12 years left in the tank. This secular bull market has been powered by tech and will continue to be powered by tech for the remainder of the 12 years.
Watch for the next hot subject–AI. There will be a bubble involving all things related to AI. Perhaps a 1929-styled crash will finish the secular tech bull market at the end.
For the meantime, you can still buy the dips even though the time between the dips have been getting a little longer.