NASDAQ Gone too Far?

31 March 2023

Technical Analysis:

The recent recovery in the NASDAQ sees the tech index up strongly, now trading at a 7-month high,and up +17% year to date. Despite no strong fundamentals to support that as the Fed are still aggressive with their rate hikes and with valuation metrics looking inflated, with no major break in the economy yet despite the significant quantity of rate hikes (banking scare being mostly contained, and a recent flock to safety towards large cash rich tech companies creating support as well as recent momentum + some short squeezing and portfolio rebalancing).

Using RSI as an indicator there seems to be some room and time for the market to extend its gains temporarily with the purple line and upward arrow within the down market, as well as orange arrows in the bull market. This is usually temporarily lasting a few weeks then met with a pullback in both bull and bear markets. In the current bear channel we suspect the “rug pull” once it happens will be heavy — like it has done so over the past 15-months. We see 2023 first quarter tech earnings to be the possible catalyst due late April.

We are yet to see the Fed fully break something, but are possibly close to seeing something major break (3-6 months away). We believe the markets are too optimistic, pricing in a soft-landing alongside elevated P/E multiples which disregard the high interest rate environment we are currently in. We expect a downward re-rate in multiples.

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