The Tech Stock Rally Is Just Getting Started
Editor's note: Tech stocks' reign is only beginning...
Investors have poured money into the technology sector this year as the rise of artificial intelligence has created a slew of innovative opportunities. And True Wealth editor Brett Eversole says this trend is still in its early stages...
That's why Brett believes it's critical for investors to understand that history shows tech stocks are poised to soar even higher in order to take advantage of this unique setup.
In today's Masters Series, adapted from the June 13 and July 24 issues of our free DailyWealth e-letter, Brett highlights this year's massive rally in tech stocks... explains why this uptrend is likely to last much longer... and reveals how investors can capitalize on this prolonged boom...
The Tech Stock Rally Is Just Getting Started
The first half of 2023 – at least in the investment world – was one for the ages.
Stocks absolutely soared. The S&P 500 Index was up 17%, marking the broad market's second strongest first-half performance this century.
But that was nothing compared with the tech-heavy Nasdaq 100 Index. It was up 39% in the first half of 2023... nearly 2.5 times the S&P 500's return in the same time frame.
That massive gain has the index stretched to a rare level. You might think that would hurt future returns. But history shows a different outcome.
Instead, this rare setup means the gains will likely continue. And we could even see 23% upside over the next year.
Let me explain...
With nearly a 40% jump in just six months, no wonder prices feel stretched to the upside.
You might think that tech stocks have risen too far, too fast... and that a fall to earth is imminent.
But in the case of the Nasdaq 100 today, we're seeing two key reasons why that's not a smart bet to make.
For our first signal, I compared the index with its long-term trend, or 200-day moving average (200-DMA). That's simply the average of the last 200 closing prices.
The index is in an uptrend if it trades above the moving average. Below that level, the index is in a downtrend. And longtime DailyWealth readers know you want to buy when the trend is in your favor.
We also know that as the price moves further above the 200-DMA, the risk of a snapback increases. So being too high above the long-term trend seems scary. And right now, the Nasdaq 100 is massively above that level. Take a look...
The Nasdaq 100 was more than 20% above its long-term trend line for most of August. It hit 26% at its peak in mid-July. And that's a crazy reading, considering the long-term average is around 6%.
To see what that means going forward, I looked at every new instance of the index hitting 20% above its 200-DMA since 1985. This has only happened 15 other times. And it has a history of leading to fantastic returns. Take a look...
The Nasdaq 100 has an impressive long-term track record. It has led to 13.5% annual gains over the past four decades. And surprisingly, you can increase those returns by buying when the market stretches above the long-term trend like it's doing today.
Similar instances led to 7.3% gains in three months, 12.9% gains in six months, and 22.9% gains over the next year. That's fantastic outperformance.
What's more, this isn't what we'd expect to see. Typically, this kind of setup would lead to a slowdown in returns. But in this case, it tells us that the uptrend is on fire... and that it'll continue.
The Nasdaq 100 is up 39% this year. That's more than double the gain of the S&P 500. And this rally isn't ending anytime soon.
Our next signal makes that forecast even stronger...
The Nasdaq 100 broke out to a 52-week high in late May. The trend is on our side. And we can see something even more impressive once we do some more digging...
This was the first 52-week high in at least a year. And that's darn rare. Setups like this have only happened four other times since 1985. More important, it suggests that a greater boom could be underway...
You see, this kind of move only happens after a prolonged bear market. Not hitting a new 52-week high for a year or more means that stocks have been struggling for at least a year. And the breakouts that followed have been fantastic times to put money to work.
To see it, I looked at the Nasdaq 100's performance after each similar setup since 1985. And each instance led to incredible profits. Take a look...
The Nasdaq 100 has returned 13% annually since 1985. That tops the S&P 500's gains of 11% in the same time frame. But buying after instances like today's improves our upside even more...
Similar setups led to 11% gains in three months, 12% gains in six months, and 18% gains in a year. That's impressive outperformance, even for an index where big gains are the norm.
Even better is the solid track record... None of these situations led to a loss in any time period. In fact, they all happened in years that were great long-term buying opportunities... 1986, 1989, 2003, and 2009.
It's easy to look at the boom in the Nasdaq 100 and assume you've missed it – or that it's a false rally after a punishing year, with more pain on the way. But history disagrees.
In simple terms, the market is firing on all cylinders right now. You can choose to fight it and look for reasons not to invest... Or you can accept reality and get on board. I recommend you do the latter.
Good investing,
Brett Eversole
Editor's note: This tech stock boom isn't the only major event taking place in the market right now. That's why Brett is teaming up with The McCall Report editor Matt McCall for an urgent briefing on Tuesday, September 12 to discuss what's coming next...
They'll reveal a new bull market prediction that could be bigger than the tech stock frenzy we've seen so far this year. They believe they've found the next group of stocks poised to rally. Click here to learn more...