Nasdaq: Why We May See Positive Returns In The Next 12 Months
2022.09.28 11:19
- Over 90% of Nasdaq 100 components are trading below their 200-day moving average
- Historically, such a setup has always yielded positive returns for the index in the following 12 months
- Should the index keep falling over the next 2-3 months, I intend to take the opportunity to gradually buy high-quality tech names
Except for Russian indexes—which are a different story right now—the is officially the worst-performing stock index among major markets year-to-date, having lost around -30.5%.
NASDAQ Composite Daily Chart
As we can see in the above chart, the tech-heavy benchmark is hovering dangerously close to the support created by this year’s low—reached in mid-June. A sustained breakout below this level would likely imply the beginning of yet another leg down.
Since several younger investors had been mainly hoarding tech/growth stocks since the pandemic, the bloodbath might have been worse for them—with some individual stocks losing over 80%-90%.
Plus, as shown in Mike Zaccardi’s earlier this week, Millennials sold significantly more investments than any other age group amid this year’s rout.
Selling Behavior Among Different Generational Groups
Source: Ally Invest
But to look at the situation today from a long-term investor’s perspective, we can either panic or try to remain clear-headed and understand that opportunities arise precisely from moments like these.
Let’s take a look at this exciting statistic:
Percent Of Nasdaq 100 Stocks Above Their 200-Day Moving Average
Source: Marketcharts.com
The chart above shows the percentage (vertical axis) of stocks on the trading above their 200-day moving average. Over 90% of the index’s components are currently below this level, an obvious result of the strong bear market we are experiencing.
While this might seem like a panic element, let’s delve deeper into the data with the second image below.
1-Year Returns For Nasdaq 100 In Such A Scenario
Source: Marketcharts.com
I don’t want to bore you with statistics and technical terms. Still, simply put, if you look at the distribution of returns, you will notice that every time a similar setup occurred in the past (from 1996 to the present, even considering the Dotcom bubble) in the following 12 months, the Nasdaq 100 posted positive returns.
Since past performance does not guarantee future performance, we always have to approach the data with the proper caution.
However, putting everything together, this could be a very interesting moment to start repositioning (gradually) on tech equities, perhaps taking advantage of potential further declines in the 2-3 months ahead. That’s especially if the Nasdaq sustains a breakout below this year’s lows.
You could do this by taking direct exposure to the index or doing the proper analysis to find quality tech at discount valuations in the case of individual stocks.
As always, no one can predict the future, but at least investing based on data is worth a lot more than randomly investing in the long term.
Disclosure: The author is long on the Nasdaq and will buy more positions if the selloff continues.This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling, or an investment recommendation. As such, it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset is highly risky and must be evaluated from multiple points of view. Therefore, any investment decision and the associated risk remains with you.
