More thrust and reversal signals in Technology

Key points:

• The Nasdaq 100 triggered a breadth thrust buy signal at the close of trading on Friday
• In less than 15 sessions, the S&P 500 Technology sector and the Nasdaq 100 cycled from a low to a high
• Similar thrust and reversal signals displayed bullish outcomes for Technology and the Nasdaq 100

Additional bullish evidence for Technology-oriented stocks

In momentum investing, market participants monitor bullish price action in stocks or index ETFs with the premise that the trend will persist. Technology and Communication Services stocks undeniably exhibit bullish momentum. Therefore, as long as the evidence remains positive, traders should capitalize on what's working well and avoid less favorable areas.

At the close of trading on Friday, a breadth thrust buy signal triggered an alert for the technology-heavy Nasdaq 100. The thrust system I use was made famous by Walter Deemer, a revered market analyst. It's known as Breakaway Momentum (BAM).

Similar breadth thrust signals preceded positive returns

When the 10-day sum of advancing issues compared to the 10-day sum of declining issues exceeds a ratio of 2.0, positive price momentum for the Nasdaq 100 will likely continue over the foreseeable future. Over the following three months, the signal showed a gain at some point in 40 out of 45 precedents. 

A rare reversal for the Nasdaq 100 and S&P 500 Technology sector

The bullish participation from stocks comprising the Nasdaq 100 mirrored favorable price action at the index level. For only the 5th time in history, the Nasdaq 100 cycled from a 3-month low to a 3-month high in 15 or fewer trading sessions.

Similar price reversals suggest the positive momentum can continue

While the sample size is small, the Nasdaq 100 rallied every time over the subsequent two weeks whenever it cycled from a 3-month low to a 3-month high in 15 or fewer sessions.

While the Nasdaq 100 and the S&P 500 Technology are driven by several of the same mega-cap members, the large-cap technology index also triggered the exact reversal pattern for the only 11th time since 1971.

Whenever the S&P 500 Technology sector cycled from a 3-month low to a 3-month high in 15 or fewer trading sessions, the sector was higher 90% of the time over the subsequent two weeks with a median gain of 3.2%. 

What the research tells us...

The Nasdaq 100, a popular technology-dominated stock index, triggered its first breadth thrust buy signal in over nine months. Similar participation-based alerts led to further upside momentum for the index. The surge in technology-related companies sparked a rapid turnaround in the Nasdaq 100 and S&P 500 Technology sector, propelling these indices from their lowest points in the past three months to their highest levels in the same timeframe-accomplishing this remarkable feat in just under 15 trading sessions. Price momentum shifts, such as the one observed now, often translate into outstanding outcomes over the following two weeks and extended gains over longer horizons.