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Long Nasdaq 100 on Return to Growth Stocks: Q3 Top Trading Opportunities

Long Nasdaq 100 on Return to Growth Stocks: Q3 Top Trading Opportunities

Peter Hanks, Strategist

Nasdaq 100 Talking Points:

  • Growth stocks will look to outperform value after a disappointing second quarter
  • Slipping US Treasury yields may enable growth stocks further
  • Regulatory headwinds exist, but are not a major concern at this point

See the favorite trades from each DailyFX Analyst for the third quarter. Download our new 3Q top trading opportunities guide from the DailyFX Free Trading Guides!

The Nasdaq 100 found itself in an unusual position in the first five months of the year as it lagged behind its industrial counterpart the Dow Jones amid the ongoing reflation trade. The trade was a popular theme across Wall Street and had seen the Nasdaq 100 to Dow Jones ratio crumble with the Industrial Average outpacing the tech-heavy Nasdaq.

Nasdaq 100 to Dow Jones Ratio – Growth to Value Barometer

nasdaq/dow jones ratio chart

Now with the reflation trade put on pause and an emerging rotation back into fast-growing technology stocks, the Nasdaq 100 could reclaim its throne as the leader of the US indices. Looking to the Nasdaq 100 price chart specifically, recent price action has seen the index tag a new all-time high that has prolonged the series of higher-highs. Trading above all longer-term moving averages and key rising trendlines, the technical landscape of the Nasdaq 100 appears constructive to further gains.

Nasdaq 100 Price Chart: Daily Time Frame (January 2020 – June 2021)

ndx chart

Chart prepared by Peter Hanks, created with IG

To that end, the Nasdaq 100 may have a relatively easy path higher given that it is largely devoid of overhead resistance. On the other hand, support may be found along the series of swing-lows dating back to September 2020 and will look to guide the Nasdaq 100 higher still.

While the fundamental and technical landscapes appear encouraging, there are risks to consider. First, seasonal market headwinds may make further topside progress difficult to establish as volume and volatility dry up. Such an environment could see an increase in range-bound price action that may serve as healthy consolidation in the long run.

Growing Regulatory Risks

Outside of seasonal concerns, the Nasdaq 100 will have to negotiate the growing risk of regulatory scrutiny. Both sides of the aisle in the United States have begun to take aim at large technology companies for a range of issues including monopolistic practices and creative tax workarounds that have shielded many of the largest corporations from large tax burdens.

Should big-tech regulation gain steam, the leading members of the Nasdaq 100 could come under fire which would likely create uncertainty and volatility for the broader index. Nevertheless, such regulation has been a talking point for months now and little progress has been made. As a result, there is little to suggest concrete action that would harm growth prospects is exceedingly imminent – creating a window for investors to explore the constructive fundamental and technical backdrops.

See the favorite trades from each DailyFX Analyst for the third quarter. Download our new 3Q top trading opportunities guide from the DailyFX Free Trading Guides!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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