The Nasdaq Composite (CCMP) soared to new heights yesterday, crossing the 20,000-point threshold for the first time. This remarkable achievement was driven by the impressive performance of its mega-cap components, particularly NVIDIA, Apple, Microsoft, Amazon, Meta, Tesla, and Alphabet, which collectively contributed to about two-thirds of the overall gain. Notably, NVIDIA alone contributed around 18% to this surge.

Analyzing the Rally

Technical Perspective

  • The CCMP has shown remarkable growth, adding 96% since hitting a low in December 2022.
  • A minimum price objective near 21,600 has been set based on the consolidation range prior to the breakout earlier this year.
  • However, the index is currently overbought and approaching the upper end of a rising wedge formation, a bearish pattern.
  • The rate of change over the last 491 trading days is at 96%, indicating a potential slowdown in momentum.
  • The percentage of CCMP constituents hitting new 52-week highs has declined, suggesting a lack of broad-based support for the rally.

    Investment Strategy

  • While a top on the CCMP may not be imminent, investors should consider strategically buying dips within the longer-term rising price channel rather than chasing the latest breakout.
  • In case of a pullback, key support levels to watch include the 20-day moving average, recent November highs, and July highs.

    Milestone Achievement

  • Crossing the 20,000-point milestone is significant as it acts as a psychological reference point and benchmark for progress.
  • It took the CCMP 1,644 days to double from 10,000 to 20,000 points, in line with historical trends.

    Performance Outlook

  • After doubling, short-term momentum tends to slow down, but longer-term returns have historically been positive.
  • Post-12-month average and median returns stand at 12.4% and 25.9%, respectively, indicating potential for sustained growth.

    Summary
    The Nasdaq’s remarkable rally, fueled by the rise of Artificial Intelligence (AI), has been impressive. However, concentration risk remains high as a few mega-cap names continue to drive outperformance. While the AI story is ongoing, technical indicators suggest a potential pause or pullback in the index. Investors are advised to strategically approach the market by buying dips rather than chasing the latest rally.

    This comprehensive analysis provides valuable insights into the current state of the Nasdaq Composite and offers a strategic perspective for investors looking to navigate the dynamic market conditions.

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