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Nasdaq: Why We May See Positive Returns In The Next 12 Months

www.investing.com/analysis/nasdaq-why-we-may-see-positive-returns-in-the-next-12-months-200630407
Nasdaq: Why We May See Positive Returns In The Next 12 Months
By Francesco Casarella/Investing.com   |  Sep 28, 2022 10:12AM ET
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  • 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 NASDAQ Composite is officially the worst-performing stock index among major markets year-to-date, having lost around -30.5%.

NASDAQ Composite Daily Chart
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 article earlier this week, Millennials sold significantly more investments than any other age group amid this year's rout.

Selling Behavior Among Different Generational Groups
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
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 Nasdaq 100 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
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.

Nasdaq: Why We May See Positive Returns In The Next 12 Months
 

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Nasdaq: Why We May See Positive Returns In The Next 12 Months

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Comments (16)
Todd Gray
Todd Gray Oct 01, 2022 10:17AM ET
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Maybe. But, the state of the world economy, its fiscal private and derivative debt has no precedent. So compared to what?
Kris Jay
Kris Jay Sep 30, 2022 7:33PM ET
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none of the periods mentioned were coupled with FED rate hikes and QT.  all of the V recoveries and returns were due to easy liquidity.   We won't even have inflation down to 2% in 12 months let alone a bursting stock market ready for SP500 to hit 5000.
G D
G D Sep 30, 2022 6:00PM ET
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Well all of you bulls who downvoted me, thanks for making me money :) Keep being a perma bull
Jimmy John
Jimmy John Sep 30, 2022 4:35PM ET
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Another kool aid king in dreamland
Daniel Curtis
Daniel Curtis Sep 29, 2022 2:58AM ET
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Tsla has a price earnings that makes the dot com bubble look mild
Saun Melkon
Saun Melkon Sep 29, 2022 2:57AM ET
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I don't understand you people. You are all talking about "higher real rates" of 4-4.5% which is a LIE because official inflation is 8.5-9%! Powell NEVER will raise interest rates above the inflation rate, meaning we'll have high inflation FOREVER. Financial conditions will be loose FOREVER or until king dollar is dethroned. Therefore investing in ANY stock market is the same as gambling with your life savings. Your money and your life are on the line. Invest accordingly. If king dollar is dethroned, the real king, gold (and prince silver) will take back its throne resulting in a saner world with fewer conflicts easily financed with fiat currencies. But you can't get your head around this, can you?
Kris Jay
Kris Jay Sep 29, 2022 2:57AM ET
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i wouldnt say never, but for sure, Powell will not raise rates quickly to be above inflation, so we are stuck with it for a long time where he nibbles 75bps 4 to 6 times per year until politics and media set our living as the "new normal".   interest rate hikes are not going to make fossil fuels cheaper when WH is doing all it can to make it more expensive.
Ricardo Diogo
Rcd72 Sep 29, 2022 1:03AM ET
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is tiring to reading biased analysis....200 days average....on what period? during the result of the silliest monetary environment ever to have occurred? turn serious please!
Son Yay
Son Yay Sep 28, 2022 10:34PM ET
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Wait until we see stocks at 2 or 3 year lows rather than just 1 year.
Kris Jay
Kris Jay Sep 28, 2022 10:34PM ET
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yes i do not doubt we willl get to pre-2020 levels, maybe 2018 or 2019 levels.
Son Yay
Son Yay Sep 28, 2022 10:33PM ET
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That's one perspective. I think there is still more lows to come, we are still inrl rising rates. UE hasn't gone up yet. Many stocks are still at P/E of 50+
Keith Spiller
Keith Spiller Sep 28, 2022 8:47PM ET
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probably not
 
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