Fade Nasdaq rally – Fairlead Strategies

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Fairlead Strategies analysts are telling traders to fade the Nasdaq 100 rally as certain technical indicators have generated a ‘sell’ signal.

The DeMARK Indicators, specifically the TD Sequential model, are flashing ‘sell’ for the first time since November 2021.

“Past signals have been fairly timely,” they wrote to clients in an update.

The technical analysts see a pullback ahead for Nasdaq with a 2-week correction a typical outcome after the Sell signal was generated yesterday. However, they also warn that sometimes these signals “yield more lasting reversals.”

They also expect the rotation from tech and communications to cyclical sectors to continue in the near term.

The Nasdaq 100 is down nearly 1% today as it trades around 12,550. The analysts highlight 12,856 as resistance and 11,776 as initial support. A deeper pullback would see the tech-focused index test long-term support around 10,600.

A pullback in the Nasdaq would mean that mega-cap stocks, like Microsoft (NASDAQ:MSFT), Apple (AAPL), Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), and Alphabet (NASDAQ:GOOGL), are also correcting after a period of outperformance as investors seek shelter in high-quality names amid the recent banking crisis.

BTIG analysts share the same view as they believe that large-cap outperformance is likely over, at least in the near term.

“We believe the risk is that these names, and therefore tech broadly, catch-down to other parts of the market and that is what ultimately moves the SPX lower,” they said.