As I noted in my last post, the NASDAQ is destined to join all of the other major indices in meeting or exceeding all time highs this year. However, a tortuous path has been followed to get there. It appeared that this breakout was about to happen in late February 2014, after the recovery from the late January/early February swoon. However, a mini-crash in the NASDAQ momentum stocks (e.g., TSLA, NFLX, TWTR, FEYE, GOOG, and PCLN) led to a (successful) NASDAQ retest of the early February lows. In the meantime, the S&P 500 maintained a long term uptrend supported by its 100-day moving average. In the past few weeks, the NASDAQ and its fellow laggard, the Russell 2000, have found support near prior lows and their 200 day moving averages, gained relative strength, and are poised to make a strong move to meet or exceed previous highs. In fact, the NASDAQ 100 (NASDAQ:QQQ) stocks have already accomplished this feat. If the NASDAQ is going to go back to above 5000, it will need contributions from these large cap technology stocks, such as AAPL, MSFT, CSCO, ORCL, most of which have outperformed the broader market this year.
A bullish interpretation of the results of the latest FOMC meeting later this afternoon is a likely catalyst. As always, there are cautionary signs due to relatively low VIX, relatively high levels of bullishness by institutional investors, and relatively low volume. These are at levels which have often preceded large corrections. However, there are also positive indications, like a high level of NYSE short interest and an advance/decline line that shows broad participation. In addition to large cap technology (QQQ), I still like the Utilities (NYSEARCA:XLU), Precious Metals (NYSEARCA:SLV), and other laggards from last year, such as emerging markets (NYSEARCA:EEM), to outperform this year. This has not happened yet for Precious Metals, but these have strengthened in the past week or so. I also like some of the fallen angels like TSLA, TWTR and FEYE, for a trade. TSLA should at least match its previous high near 250. Both TWTR and FEYE will struggle with resistance around 40.
In either case, the length of time for the recent market consolidation suggests that there will be a powerful move. I am betting that this will be in a positive direction, much like the move of AAPL out of its long consolidation between 520 - 540. Be careful out there!
Disclosure: The author is long XLU, SLV, TWTR, FEYE.