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NDX Outlook

Stocks closed in July with solid gains. It was the fifth month of favorable returns for the two stock market indexes, SPX and COMPQ, recording one of the longest winning streaks since the 2021 timeframe.


Oil prices have recovered, heading toward one of the best monthly gains of the year. Commodities (CRB Index) and the Energy sector (XLE) have also improved as they produced robust gains toward the end of the month.


On the global front, investors continue to monitor the announcement from the Bank of Japan (BOJ) on the special bond purchases as the yen fell and Japanese bond yields rose. Economic numbers from China, including a recent manufacturing report, show improvements from the prior period. Bank of England intends to hike interest rates by 0.25% later in the week.


It will likely be another busy week as two Magnificent Seven stocks will report earnings. The monthly jobs report scheduled for Friday’s release can surprise the market by demonstrating further strengths in the labor market.


This year has been about the strengths within the Nasdaq markets and mega-cap technology names as they continue to power the US stock market higher. NDX is on track to outperform its U.S. equity peers by one of the widest margins ever recorded.


How long will this mega-cap technology-driven rally last?


And, most importantly, how high?

Another technical update to NDX is summarized below:


The recent breakouts above the 61.8-78.6% retracements (14,349/15,411.5) from the Nov 2021-Oct 2022 are technical significant as this suggests NDX is poised to retest its Nov/Dec 2021 all-time highs of 16,765/16,607 this year. It would imply another 1,007.86 points or +6.4%.


Despite trading at overbought levels (RSI is 65.73), continued price momentum and relative strengths of mega-cap techs can still carry NDX to challenge its record highs.


Also, the Mar 2023 uptrend channel is climbing at a steady and sustainable 45-degree pace. If this trend continues, NDX can revisit the top of its 4-month channel at 16,635, coming within striking distance of the Nov/Dec 2021 record highs.


The timing of this call depends heavily on the outcome of the shorter-term chart. A consolidation between 14,374.66 (7/24/23 low) and 15,932.05 (7/19/23 high) can help alleviate an overbought condition, fueling the next NDX rally.


A breakout above 15,932.05 suggests 557.39 points and renders a projection at 16,489.5. Please refer to the attached 6-month for further information.


The 6-month chart continues to signal bullish conditions as long as the March 2023 uptrend channel remains intact between 15,198 (support) and 16,635 (resistance). A breakout above 16,635 completes an accelerated channel breakout and hints at the potential for an explosive rally of 1,437 points for an NDX target as high as 18,072. Is this the speculative blow-off phase to the mega-cap Technology rally?


Initial support is 15,275-15,375 (7/12/23 short-term breakout, 7/13/23 gap-up, and the 7/24/23 low). Secondary support is 14,909.5-15,210 (7/12/23 gap-up, bottom of the Mar 2023 uptrend channel, and the 50-day ma). Medium-term support is 14,663-14,817 (6/12/23 short-term breakout, 6/26/23 low, and the Jul 2023 consolidation breakdown downside target). Intermediate-term support is 13,521-13,721 (Aug 2022 reaction high, May 2023 pivotal breakout, and the 5/24/23 island reversal low). The 200-day ma (12,762.98), which is 2,994 points away or 19% away, is significant support. Violation here warns of the next NDX selloff.


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

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