Technology bulls continued on Friday to win rounds as the Battle of 2023 nears an end, states Jon Markman, editor of Strategic Advantage.
Bears have now been knocked down so many times the outcome is inevitable. Expect a bias toward higher prices in the final third of this month, especially if there is a sharp downward shock in the next couple of days.
Nasdaq 100 closed at 16,623, a gain of 0.5%. The growth-stock benchmark added 3.6% for the week, its seventh consecutive weekly advance.
It’s easy to list these gains without really stopping to think about how they fit into the bigger picture. As an example, if your S&P 500 (SPY) position rose every day at 0.5% for a year, it would rise 187.2% (without compounding). And if your QQQ position rose 3.6% a week it would be up 187.2% in a year without compounding. So yeah these are big numbers.
So many consecutive rounds of abuse are taking a toll on bears. They have certainly now conceded a rally for the NDX to 16,765, a test of the November 2021 high. Bears now hope they can regroup at that level.
Call it the Bob Marley approach to conflict. The late reggae star is famous for the “Heathen” song lyric, “He who fight and run away, live to fight another day.”
I’m not sure this strategy will work for Bears in 2024, though. They have been thoroughly defeated in 2023 despite so many data points leaning in their direction.
Don’t forget that 2024 is an election year, which means the incumbent will pull every available lever to make the economy appear as strong as possible.
Interest rates are set to decline, according to the Federal Reserve. Crude oil production can be accelerated to the extent that gasoline prices at the pump are demonstrably lower by the time voters are making up their minds from September through November. And, most importantly, professional money managers know about the bias toward higher stock prices in election cycles and are tuning their investment models for higher stock prices. They are likely to start the year with a bang as they attempt to bring in new money.
The rally on Friday was another reminder that the skewering of bears in 2023 is still not complete. Friday marked the expiry of equity options, index options, and futures contracts. These “triple witching,” events, when three types of derivatives expire on the same day, tend to get pulled to rounded strike prices.
In this case, the Invesco QQQ Trust (QQQ) exchange-traded fund was pulled to the $405 strike price. The QQQ tracks the NDX, and the $405 strike corresponded to the November 2021 high water mark. Bears who bought December 2023 series puts for that strike, hoping the QQQ would not get back to its record high any time soon, have been wiped out.
Those contracts have now expired worthless. Bears can run away, but they can’t hide. I expect more pain heading into early January as pros pull in new money.
