- The NASDAQ 100 Index rallied yet again on Monday to show that the markets are ready to continue ripping toward the 200-day EMA.
- Fundamentally, there’s no reason whatsoever that the NASDAQ 100 should be powering higher the way it is, but at the end of the day, the markets have changed so much over the last 14 years that they have lost grip with economic reality.
- This should not be a surprise, because the Federal Reserve has caused this problem.
Plenty of Liquidity
Markets run on liquidity and nothing else. As long as there is going to be plenty of liquidity, people throw money at risk assets because there’s nothing else to do. Bond markets don’t pay much in yield, so they have to find a way to make money. They do this by purchasing some of the worst stocks on the planet, in what would be “good times”, and go back to the major companies in times that are a bit riskier.
Keep in mind that the NASDAQ 100 is controlled by about 7 major companies, so this is the same thing as making a bet on Tesla, Microsoft, Amazon, and a few others. This is not 100 stocks, it’s more like 7 stocks and 93 other things to look at. As long as money is going to go flying into those big companies, this market will continue higher.
Ignore the fact that the world is going into a recession, ignore the fact that a lot of pundits can pull out charts showing you just how miserable economic conditions are. Until Wall Street gets it through its head that there is a serious risk, we will continue to see more of this mentality play out. Because of this, it’s very difficult to trade other than to simply “chase the market.” In that scenario, you need to be very cautious about your position size, because someday somebody is going to look around and realize how bad the true economy is. If the Federal Reserve is in fact going to have to fight an 8.5% year-over-year inflation situation, that’s not good for stocks. However, Wall Street does not seem to know that right now, so you can’t fight the tape. It’s very likely we go looking to reach the 14,250 level over the next several days.
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