The Nasdaq Composite index has done well this year, helped by the strong performance of technology companies. It has risen by over 20% this year and is hovering near its highest level on record. It soared by 80% from its lowest level in 2023.
Catalysts for the Nasdaq Composite index
The Nasdaq Composite Index, tracks almost all companies that are listed in the NASDAQ index.
It has thousands of companies and is market-cap weighted, meaning that its top companies are firms like Apple, NVIDIA, Microsoft, and Amazon.
51% of the companies are in the technology industry, making it a more concentrated fund. They are followed by firms in the communication, consumer cyclical, health care, financials, and consumer defensive.
The fund has done well this year because of the hopes that the Federal Reserve will deliver more interest rate cuts. It has already slashed rates by 0.50%, and economists see more cuts in the coming months.
Interest rate cuts will likely lead to more inflows as investors who have allocated cash to money market funds (MMF) rotate to risky assets.
It has also done well because of the ongoing inflows in the artificial intelligence industry, which is seeing strong demand.
Additionally, technology companies have published strong financial results this year. Meta Platforms said that its revenue rose by 19% in the third quarter to $40.5 billion, while its net income jumped by 35% to $15.6 billion. This happened as the number of users in its ecosystem rose by 5% to 3.29 billion.
Apple, the biggest company in the world, also released modest results, which showed that its revenues rose by 6% to $94.9 billion. This revenue was boosted by its strong iPhone demand, especially in China.
Intel, the embattled semiconductor company, also published strong financials, sending its stock 12% higher.
The next important catalyst for the Nasdaq Composite index will be the US election, which will determine government policy in the next few years.
Still, historically, American stocks perform well after the election as investors embrace a new normal.
Top Nasdaq Composite stocks
The best-performing companies in the Nasdaq Composite index are in the biotech industry. They include firms like Genedx Holdings, Longboard Pharmaceuticals, Summit Therapeutics, Ligand Pharma, Janux Pharmaceuticals, and Avidity Biosciences. All these firms have soared by over 365%.
The other top performer is Clover Health Investments, a former meme stock, whose stock has jumped by 332% this year. Clover, a company in the Medicare Advantage, has done well after receiving several upgrades. It also signed a multi-year agreement with Counterpart Health, a deal that will see it deploy its AI technology to hundreds of providers in the region.
AppLovin is another top-performing company in the Nasdaq Composite index as it jumped by over 300% this year. This performance has been because of its strong earnings. Revenue rose by 44% to $1.08 billion, helped by its software platform, which grew by 75%. Its net income rose by 29% to $310 million.
Companies in the crypto industry have also done well this year as Bitcoin has soared. Some of the most notable ones in the Nasdaq Composite were MicroStrategy, Terawulf, and Core Scientific. Other big gainers were Sprouts Farmers Markets, NVIDIA, Comstock, and Powell Industries.
Many other companies in the Nasdaq Composite index have also pulled back this year. 23andme, which was founded by Anne Wojcicki has crashed by over 74% this year and is on the verge of collapse.
Hertz shares have plunged by 73%, while Walgreens Boots Alliance, Five9, Intel, Rivian, Plug Power, Vinfast, Avis Budget, and Dollar Tree were some of the worst performers.
Nasdaq Composite index analysis
Nasdaq Composite chart by TradingView
The weekly chart shows that the Nasdaq Composite index formed a double-top pattern at $18,675. In most periods, this is one of the most popular bearish signs in the market.
It has remained above the 50-week and 25-week moving averages. Also, it remains significantly higher than the key support point at $16,230, its highest swing in November 2021.
Therefore, there is a risk that the index will retreat and retest the key support point at $16,230, which is about 10% below the current level.
The post Nasdaq Composite index forms a risky pattern, pointing to a reversal appeared first on Invezz
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