Since the beginning of the year the growth of Nasdaq 100 was greater than the increase in company profits
The US index of high-tech companies Nasdaq 100 increased by 21% since the beginning of the year, which is much higher than the growth of Dow and S&P 500 indices by about 11% over the same period. Is there a possibility for Nasdaq 100 quotes to decline?
An important reason for the growth of the US stock market was investors’ hopes that the new president Donald Trump would begin to implement reforms aimed at accelerating the US economic growth. After his disagreement with the US Congress, the likelihood of such outcome diminished. Meanwhile, after Trump's victory in the presidential election, Nasdaq 100 grew by 26%. The increase in the total profit of the US companies in Q2 is estimated at about 11%. For example, the growth of Apple's net profit was 11.8% and this figure is considered to be excellent. Apple quotes are by 34% higher than their level at the beginning of the year, despite the fact that on Thursday they decreased by 1%. Theoretically, the difference between the growth of stock prices and the real increase in their profits can cause a price correction.
On the daily timeframe, Nd100: D1 remains in the rising trend. However, its growth has slowed down and a number of indicators have formed bearish signals. The downward correction is possible in case of the publication of negative corporate and economic information in the US.
- The Parabolic indicator gives a bearish signal.
- The Bollinger bands have markedly widened, which means higher volatility.
- The RSI indicator is above 50. It has formed a negative divergence.
- The MACD indicator gives a bearish signal.
The bearish momentum may develop in case Nd100 drops below the last fractal low at 5840. This level may serve as an entry point. The initial stop loss may be placed above the last fractal high, the historic high and the Parabolic signal at 6020. After opening the pending order, we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 6020 without reaching the order at 5840 we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
| Position | Sell |
| Sell stop | below 5840 |
| Stop loss | above 6020 |