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NDX Monthly Chart - Golden Cross buy signal or a Double Top?

In an uncertain economic environment marked by geopolitical concerns, soaring interest rates, and unclear Fed monetary policies, investors turned to mega-cap corporate earnings to guide them in the stock market.


Since the mega-tech names are so heavily weighted in market indexes, including NDX and SPX, volatile swings in the Magnificent Seven names can exert undue influence in the broader markets. It is especially noticeable when stock market indexes lack market breadth, suggesting a few mega-cap names can push the broad market significantly higher or lower.


This week, mega-cap technology names will provide Wall Street insights into the global economy and business cycles. Two of the Magnificent Seven tech names, Microsoft (MSFT) and Alphabet (GOOGL and GOOG), which have driven the stock market returns, will report.


GOOGL posted quarterly sales of $76.69 billion, up 11% from the same period the prior year, and profits of $19.69 billion for the quarter. Also, MSFT recorded revenues of $56.5 billion or a 13% year-over-year sales growth, beating expectations. Microsoft’s quarterly profits jumped to $22.3 billion with gains of 27% from the year-ago.


U.S. stocks continue to weaken. The Nasdaq Composite Index suffered one of the biggest daily declines since last February. Microsoft ended the day up 10.12 points or 3.06%. But Alphabet closed down 13.25 points or 9.55%.


COMPQ fell 318.65 points or 2.43%, moving toward correction levels (10%) for the first time since late last year. The Nasdaq 100 Index (NDX) also plummeted 364.21 points or 2.47%.


The S&P 500 Index (SPX) fell 60.91 points or 1.43%, and the Dow Jones Industrial Average (INDU) declined105.45 points or 0.32%.


Technically speaking, two conflicting patterns have developed in the Nasdaq 100 Index (NDX), signaling an impending inflection point.


One is potentially bullish, evidenced by a monthly golden cross buy signal in Sept 2023 as the 10-month ma (14,035.96) crossed above the 30-month ma (13,790.44).


Historically, a bullish monthly crossover hints at the next NDX bull rally. For example, two previous NDX monthly golden cross buy signals in Feb 2003 after the 2000-2002 dot.com bubble and December 2010 after the 2007-2009 global financial crisis led to powerful multi-year and decade-long NDX price rallies.


Interestingly, a monthly death cross-sell signal also occurred in Oct 2022. Monthly death-cross sell signals developed in the two prior NDX bear market declines (i.e., Apr 2021 and Sept 2008). Both culminated in major market bottoms (i.e., Oct 2002 and Nov 2008) and the start of NDX bull rallies.


On a negative note, a potentially bearish pattern has also appeared in the monthly chart, evidenced by a double-top pattern.


If this distribution top is confirmed, this warns of an NDX decline toward 10,440.64 (Oct 2022) or the bottom of the pattern, possibly negating the Sept 2023 monthly golden cross buy signal.


NDX nears another inflection, coinciding with pivotal support at the 10-month and 30-month moving averages (14,036/13,790). A breakdown below the two crucial moving averages negates the golden cross-buy signal and solidifies the double-top pattern.


However, a successful test of the two monthly moving averages solidifies the monthly golden cross buy signal and hints at a retest of the 2021/2023 highs (16,765/15,932).


Which of the two technical developments will prevail as we enter the historically favorable seasonality periods from November to January?


Source: Chart courtesy of StockCharts.com



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