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5 Reasons a Tech "Lock-out Rally" is on the Horizon
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Luckily for us tech-oriented investors, 2023 is off to a much better start than 2022. The mega-cap tech-heavy Nasdaq 100 ETF ((QQQ - Free Report) ) is up 20.71% at the time of this writing, while the S&P 500 Index is only up ~7%. Despite the hot start, I believe that tech can continue higher for several reasons, including:
Strong Trend into a Tight Consolidation: QQQ is trading in a very tight range after ripping from ~$285 into the $300s. Currently, QQQ is holding in a very tight range – indicating that despite the gains, bulls are unwilling to part with shares. Furthermore, price contraction usually leads to price expansion – and that expansion takes place in the same direction the instrument entered the pattern (in this case, up)
Image Source: Zacks Investment Research
Sentiment Cooled: The most recent sentiment survey from the American Association of Individual Investors (AAII) shows that bulls are unusually low. Markets tend to move in the opposite direction of the crowd and climb the proverbial wall of worry. A market like the one we’re in now, tends to climb the wall of worry. As bearish investors finally succumb to the strength and blow out short positions, it only adds fuel to the fire causing lock out rally potential.
April Seasonality: Historically, Aprilis an unusually strong month in pre-presidential years.
Banks have Stabilized: The SPDR S&P Regional Bank ETF ((KRE - Free Report) ) has found a strong floor in the low 40s. While tech has been diverging from the Russell 2000 Index ETF ((IWM - Free Report) ) and other regional bank-exposed sectors during their struggles, a wide-ranging banking contagion would undoubtedly be a headwind for the entire market. Furthermore, big banks such as JP Morgan ((JPM - Free Report) ), Goldman Sachs ((GS - Free Report) ), Citigroup ((C - Free Report) ), and Bank of America ((BAC - Free Report) ) have earnings coming up in the next few days. Though these stocks have been beaten down, they may want to rally as the bad news is already priced in, to a major extent. Large banks like JPM have actually seen net inflows since the crisis began.
Pre-EPS Run Potential: When tech stocks are in a bull market, they tend to run up into earnings. Several big-name tech stocks are setting up to do so, including Microsoft ((MSFT - Free Report) ), Alphabet ((GOOGL - Free Report) ), and Netflix ((NFLX - Free Report) ) – to name a few.
Image Source: Zacks Investment Research
Pictured: GOOGL is set up in a classic cup-with-handle base structure and may want to run pre-EPS.
Bottom Line
Though tech has run a lot already, certain factors indicate that a “lock-out rally” may occur. The technical trend remains strong, the public is skeptical, and banking stocks have stabilized. Look for tech stocks to break out in the coming sessions.
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5 Reasons a Tech "Lock-out Rally" is on the Horizon
Luckily for us tech-oriented investors, 2023 is off to a much better start than 2022. The mega-cap tech-heavy Nasdaq 100 ETF ((QQQ - Free Report) ) is up 20.71% at the time of this writing, while the S&P 500 Index is only up ~7%. Despite the hot start, I believe that tech can continue higher for several reasons, including:
Strong Trend into a Tight Consolidation: QQQ is trading in a very tight range after ripping from ~$285 into the $300s. Currently, QQQ is holding in a very tight range – indicating that despite the gains, bulls are unwilling to part with shares. Furthermore, price contraction usually leads to price expansion – and that expansion takes place in the same direction the instrument entered the pattern (in this case, up)
Image Source: Zacks Investment Research
Sentiment Cooled: The most recent sentiment survey from the American Association of Individual Investors (AAII) shows that bulls are unusually low. Markets tend to move in the opposite direction of the crowd and climb the proverbial wall of worry. A market like the one we’re in now, tends to climb the wall of worry. As bearish investors finally succumb to the strength and blow out short positions, it only adds fuel to the fire causing lock out rally potential.
April Seasonality: Historically, Aprilis an unusually strong month in pre-presidential years.
Banks have Stabilized: The SPDR S&P Regional Bank ETF ((KRE - Free Report) ) has found a strong floor in the low 40s. While tech has been diverging from the Russell 2000 Index ETF ((IWM - Free Report) ) and other regional bank-exposed sectors during their struggles, a wide-ranging banking contagion would undoubtedly be a headwind for the entire market. Furthermore, big banks such as JP Morgan ((JPM - Free Report) ), Goldman Sachs ((GS - Free Report) ), Citigroup ((C - Free Report) ), and Bank of America ((BAC - Free Report) ) have earnings coming up in the next few days. Though these stocks have been beaten down, they may want to rally as the bad news is already priced in, to a major extent. Large banks like JPM have actually seen net inflows since the crisis began.
Pre-EPS Run Potential: When tech stocks are in a bull market, they tend to run up into earnings. Several big-name tech stocks are setting up to do so, including Microsoft ((MSFT - Free Report) ), Alphabet ((GOOGL - Free Report) ), and Netflix ((NFLX - Free Report) ) – to name a few.
Image Source: Zacks Investment Research
Pictured: GOOGL is set up in a classic cup-with-handle base structure and may want to run pre-EPS.
Bottom Line
Though tech has run a lot already, certain factors indicate that a “lock-out rally” may occur. The technical trend remains strong, the public is skeptical, and banking stocks have stabilized. Look for tech stocks to break out in the coming sessions.