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Emerging Trends in Nasdaq: Interpreting Nasdaq's Recent Bullish Surge

In the ever-evolving world of financial markets, the ability to interpret subtleties and uncover hidden patterns is paramount to successful trading. Recently, the Nasdaq index has presented a fascinating case of apparent contradictions. On the surface, it seems to be showing weak breadth, a typical precursor to a potential downturn. However, a deeper dive into some non-traditional indicators reveals a different story, one that's supported by notable developments in the market, including some interesting trading activity on the QQQ. Let's delve into these intriguing market movements, and what they could mean for the future of the Nasdaq.


The recent uptick in the Nasdaq has notably occurred amidst significantly weak breadth, as evidenced by the leading Nasdaq breadth indicators such as Advancing-Declining Issues, New 52-week highs, and the percentage of Nasdaq stocks trading above their 50-day and 200-day Moving Averages (MAs). However, an intriguing deviation is found in my two proprietary Nasdaq breadth indicators: the % of top 20 tech stocks above their 50d MAs and the NDX distance from its 200d MA.


Top Tech Stocks Above 50d MA


This unique tool monitors the top 20 technology stocks in relation to their individual 50-day MAs. In stark contrast to the other indicators, this bespoke measure has actually been corroborating the Nasdaq's recent bullish surge.


NDX and My Custom Breadth Indicator


NDX Distance From Its 200d MA


I wrote about this indicator in the post "Has the Bear Market Ended? This Powerful Indicator Might Hold the Answer" on May 27, 2023. One of the observations I made was that in the past four major bear markets (1990, 2000-2003, 2008 and 2020), whenever this indicator reached a reading of over 17%, higher prices followed, indicating a solid recovery. The indicator is currently standing at 22.23%.


NDX and the Distance from the 200d MA


NDX Above 61.8% Fibonacci


Additionally, the Nasdaq index has convincingly ascended beyond the crucial 61.8% Fibonacci retracement level. This development is particularly noteworthy when considering the previous significant bear markets in 2000 and 2008. In both instances, the price experienced a reversal at this exact juncture. The current transcending of this Fibonacci threshold suggests a heightened likelihood that the Nasdaq commenced a fresh bull market in 2023.


NDX and the Fibonacci Levels


Large Synthetic Long Position on QQQ


In the realm of sophisticated trading strategies, the recent activity on QQQ is an especially noteworthy event. At precisely 09:05am PST today, a significant synthetic long position was established. This move involved the purchase of 10,000 of the 21st July 2023 $360 calls, and the simultaneous sale of an equivalent number of puts (the hedge fund rolled a 6/16 315 combo into a July 360 combo).. At first glance, this type of transaction may seem unusual, but it actually serves to emulate the payoff structure of a direct long position on QQQ shares. The advantage, however, is that this is achieved without the substantial initial capital outlay needed to purchase the underlying shares outright.


This tactic is not for the faint-hearted or inexperienced trader. On the contrary, it's a hallmark of Wall Street's major hedge funds, known for their complex trading strategies and significant risk tolerance. These institutional giants often have access to a broad spectrum of fundamental data, which they leverage to inform their trading decisions. It is this proprietary information, combined with their analytical prowess, that often forms the basis for their calculated bets on the market.


The adoption of synthetic long positions, like the one observed on QQQ, signals not just a bullish outlook, but also a high level of confidence in that forecast. The robust commitment of capital, even in a synthetic form, suggests a strong belief in the upside potential of the QQQ. This trading behavior among the major hedge funds is usually founded on concrete data and proven analytical models. Therefore, such trades warrant close attention as they can potentially provide insight into their high-conviction market expectations. Keep in mind, however, that despite their typically informed stance, even these titans of Wall Street are not immune to the unpredictability of the markets.


QQQ, $100m Synthetic Long


CONCLUSION


As we navigate through the dynamic world of market indices, the diverging narratives of the Nasdaq tell an intriguing tale. The conventional breadth indicators portray a market that could potentially be in trouble, but a closer inspection reveals bullish signs from our custom breadth indicators and Fibonacci retracement level. Coupled with the recent large synthetic long position on QQQ, these indicators present an argument for a burgeoning bull market. In the complex world of investing, it's these subtle signals that often provide the most value. Traders should continue to closely monitor these indicators for ongoing insights into the Nasdaq's performance. As always, understanding and interpreting these signals in a timely manner could provide crucial strategic advantages in the ever-fluctuating market landscape.



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