The Nasdaq 100, represented by the popular QQQ ETF, has been on quite the journey so far in 2024. But the big question remains: what’s next? Will we witness a continuation of the aggressive bull phase that kicked off in April, or are we on the brink of a bearish rotation driven by lackluster breadth support and narrow leadership plaguing our major equity benchmarks?
When we last did a “choose your own adventure” style analysis for the QQQ in late February, the mildly bullish scenario was a nearly spot-on prediction. We projected a higher but slower rise for the QQQ, which indeed matched the reality almost perfectly up until mid-April. Following that, we closely aligned with our third scenario, hitting around the 410-415 range.
Now let's dive a little deeper and examine the potential scenarios for the QQQ over the next six to eight weeks.
Scenario 1: The Super Bullish Scenario
Imagine a scenario where the Nasdaq 100 continues its relentless climb from April with a steep and uninterrupted ascent. Key to this trajectory would be consistent growth led by the giants of tech—what I like to call the Magnificent Seven. We're talking about Amazon, Alphabet, Google, Meta, Microsoft, and Nvidia. These names, especially with the AI boom, need to maintain their impressive upward swing. For this scenario to manifest, we'd also need a dramatic improvement in breadth indicators, meaning a larger participation in the rally across various sectors.
Scenario 2: The Mildly Bullish Scenario
In this scenario, the Nasdaq 100 would still be moving upward but at a more tempered pace. The QQQ would aim to crawl toward but not surpass the 500 level. We maintain the leadership of the major tech names and continue asking questions about the Fed’s next moves or the implications of weak breadth support, but overall, the market inches higher. Here, the breadth conditions may still remain weak while the market is lifted primarily by mega-cap growth stocks.
Scenario 3: The Mildly Bearish Scenario
Picture this: we're at or near the peak for this cycle. Historically, summer months can often trigger major market tops, and this year could be no different. We see a drift higher in the QQQ, but the lack of breadth support catches up, and the leading tech names might start to take a breather. This scenario suggests a stealth correction where benchmarks appear weaker because of the pullback in dominant names. Stock pickers looking into industrials, energy, and healthcare sectors might find more appealing charts compared to the mega-cap tech stocks that have driven market sentiment in recent months.
Scenario 4: The Very Bearish Scenario
This is the scenario you probably don't want to consider but must. Here, we not only halt our upward momentum but break key support levels, undercutting the May low, and moving perilously close to the April low in the range of 410-415. This scenario depicts a deteriorating market, spurred by weak breadth conditions, negative economic indicators, and big tech names taking significant pullbacks. If June’s CPI numbers come in hot, sparking fears that the Fed hasn't tamed inflation as expected, the market could indeed spiral into a bearish phase.
So, which of these four scenarios do you see as the most likely? Will we see a tech-driven rally, or are we facing an inevitable correction?
RR#6,
Dave
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.