Nasdaq 100 technical analysis: the index price may rally next month

Earnings reports from large technology corporations has lifted the index price to new highs

Technology shares are surging and lifting the Nasdaq 100 index to all-time highs. Strong earnings from Apple, Amazon, Tesla, Netflix, and Microsoft have helped drive the returns of the Nasdaq 100. With short-term US interest rates at historical lows, the risk on trade should continue to perpetuate in March. 

Seasonally, the Nasdaq 100 experiences mixed results in March. Technically the price action looks very positive, pointing to higher prices during the balance of Q1 2021. 

Earnings results

The revenues and earnings produced by the large-cap technology companies were better than expected but few of these companies surged following those reports. For example, Apple reported revenues of more than $100bn in fiscal Q1 (the Q4 of 2020), but most of the gains appear to be already priced in, based on the movement of the stock following earnings results. These gains were similar for many of the large-cap tech companies. 

Seasonality

The returns of the Nasdaq 100 are generally mixed in March. During the past 10 years, the Nasdaq 100 has increased 60 per cent of the time for an average gain of 0.6 per cent. Over the past five years, the Nasdaq 100 has increased 50 per cent of the time for an average gain of 0.4 per cent.

Nasdaq 100 analysis: technicals

Prices are breaking out and accelerating higher. Support on the Nasdaq 100 is seen near the 10-week moving average at 13,182. Target resistance based on the slope of the prior recent highs seen in February and August 2020 is 14,600. 

Short-term momentum is positive as the fast stochastic generated a crossover buy signal. The fast stochastic is a momentum oscillator that generates a range between 1-100. The current reading on the fast stochastic is 98, well above the overbought trigger level of 80 which foreshadows a potential correction in the price of the Nasdaq 100. 

The relative strength index (RSI) is having a difficult time breaking out. The index is beginning to divergence which is not a positive signal. If prices continue to rise but momentum stalls, this could be a sign that the index is running out of steam. The current reading on the RSI (which is a momentum oscillator) is 69, right below the overbought trigger level of 70.

Medium-term momentum is positive. The moving average convergence divergence (MACD) index generated a crossover buy signal in January. The MACD histogram also generated a crossover buy signal, crossing through the zero index level. The MACD histogram is printing in positive territory with an upward sloping trajectory which points to higher prices. 

Nasdaq 100: how to trade it

Despite the lack of leadership from the large-cap tech stocks, the Nasdaq 100 is hitting fresh all-time highs. While the index experiences mixed results in March, the technicals are strong and likely to help propel the index given the alternatives are not great. With interest rates at historical lows, riskier assets should continue to benefit. Look for the Nasdaq 100 to rally in March.

Trade US Tech 100: US100 price chart

US Tech 100
Daily change
16045.8
Low: 16000.5
High: 16405.5

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