Nasdaq's Breakout Explained

13 ott 2020

The Nasdaq Index (IXIC) opened with a 2.56% rise yesterday, over performing the S&P 500 Index (SPX), which rose by 1.64%, and the Dow Jones Industrial Average (DJI), which rose by 0.88%.
Markets closed at 11,876.26, marking the third record for the highest percentage move since April 29.

Apple (AAPL) rose by 6.4%, Amazon (AMZN) and Facebook (FB) moved over 4%. Google (GOOG) and Microsoft (MSFT) also made 2-3% moves.
Did tech stocks move due to projections that Biden might lose? That doesn't seem to be the case, because Biden is still winning the polls by 10%p.

In this post, I'll be providing an in-depth explanation on what drove the market's bullish momentum

1. Apple and Amazon as catalysts
- Apple will be revealing its first phone with a 5g feature on the 13th.
- Experts anticipate that Apple will generate record sales through their new iPhone.
- Apple's cycle demonstrates that the company has released massively innovative products every 3-4 years, which increased both the company's revenue and the stock's price
- Amazon will also be initiating "Prime Day", for 48 hours, starting on the 13th
- Due to the Coronavirus pandemic, experts anticipate that the revenue generated from this event will outperform the record from last year's Prime Day.
- As a result, we could expect higher earnings for Q4 2020.

2. Strong Earnings from Tech Stocks
- As I have previously mentioned in my other analysis, despite what seems to be a bubble, tech stocks are actually reporting solid returns every quarter
- This is especially true because most of the major tech stocks were barely hit by the viral outbreak, if not benefiting from it.

- Earnings for companies listed on the S&P500 Index are anticipated to report a 20% reduction
- Meanwhile, JP Morgan (JPM) has stated that Apple, Amazon, Microsoft, Facebook, and Google will possibly report a 13% increase in revenue, and 1% increase in net profits for Q3 2020.

3. Futures and Options Short Squeeze
- Due to the strong breakout that took place in the market today, a short squeeze took place, adding more momentum to the market
- Bloomberg also revealed the existence of a new entity that purchased a tremendous amount of call options for tech stocks
- This indicates that financial institutions who hold put options have to purchase tech stocks to hedge their positions.
- What happened in the futures and options market was especially important, as the stock market's volume decreased recently, providing an environment for stock prices to be heavily influenced by financial derivatives

4. Presidential Elections Projection
- I've recently done an analysis on the 450-page long report by the House of Representatives, which you can read more about below.

- However, despite the FUD, it seems that even with Biden winning the elections, not much will be done to these mega tech giants
- Tech companies generally tend to be friendly to the democratic party, and to split up these tech giants that are responsible for the foundation of the American economy does not make much sense from the context of the battle against China's attempt for IT hegemony.
- As a result, the initial claim that Biden winning the elections would be bad for the stock market is losing its stance

Technical Analysis
- Technical Analysis also demonstrates strong bullish momentum
- The 20 Simple Moving Average (SMA) has bounced on the 60 SMA, with the 100 SMA located at the bottom
- The alignment of the moving averages demonstrate that the trend is clearly an uptrend
- The Moving Average Convergence Divergence (MACD) has also formed a golden cross, and continues to demonstrate increasing bullish histograms
- The Relative Strength Index (RSI) demonstrates higher lows and higher highs
- Prices are getting closer to its historical high, and could potentially break through to create new all time highs, given that the trend is supported by sufficient momentum and strength.

Conclusion
Despite the fear, uncertainty, and doubt in the stock market posed not only by the Coronavirus pandemic, but also uncertainty regarding the presidential elections, the fundamentals of the companies that constitute the stock market remain strong, and tech stocks in particular, continue to demonstrate a bullish outlook for the future.

If you like this analysis, please make sure to like the post, and follow for more quality content!
I would also appreciate it if you could leave a comment below with some original insight.