The past three weeks saw a sharp rally in the US tech sector. Many stocks have rebounded in large percentage terms from their December lows. For example:
- AMZN (Low $1307 to $1700, see below) +30%
- NFLX (Low $240 to $340) +41%
- FB (Low $123 to $150) +22%
- MSFT ($94 to $108) +15%
This pushed the Nasdaq Composite Composite Index back to its December level. More specifically, the index is now trading at the level before that significant leg down from 7,200 (see Featured Chart). A V-shaped base pattern is observed.
What’s next? Will the current rally extend further? With the uptrend now short-term extended and technically overbought, a consolidation is not to be ruled out. The index could be hitting the overhead resistance at 7,200.
On the macro scene, the US gov is still shut down; while the global economic growth remains weak. For example, the latest Chinese GDP data slipped to the lowest level in years. And, most importantly, the US Fed has not really acted into the accommodative mode (yet).
Overall, I would be wary about chasing the market higher from here. The recent rebound is about unwinding the oversold conditions accumulated last year. Initiate buys on setbacks for better risk-reward ratios.
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Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.