Technical Analysis: NDX in a Strong Uptrend

Published On: 24 August 2020
Jeraldine Tan, Senior Dealer

  • Nasdaq has been on an uptrend since the low in Mar-Apr, as hot money got shifted from traditional businesses into Tech focused businesses. This was largely due to the perceived resilience of tech businesses over traditional businesses in this covid-19 environment where traditional businesses take a hit from lack of physical demand (which has since shifted to online platforms). We saw Nasdaq diverging from S&P500, both of which have been closely related historically.

  • In July, Nasdaq went into a range which but it has since broken out and continued the uptrend. Bulls may consider following the trend, buying pullbacks with stops below the July range. With such strong buying pressure, bears may want to sit on the side-lines until a mini double top has been formed before considering a short position.

  • A key point to consider is whether this is a bubble and whether the Nasdaq-S&P500 relationship will revert to post covid-19 levels. In light of this potential risk, bulls may want to manage risk by sizing their positions relative to their wide stops such that the percentage of equity risked is manageable per entry.

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