Nasdaq 100 Price Outlook:
Nasdaq 100 Price Gains Continue as Tesla Stock Soars Despite Bubble-Like Conditions
The Nasdaq 100 has begun the week on strong standing, enjoying bullish price action despite a modest rise in volatility. While strong US manufacturing data helped bolster the US Dollar and likely assisted equity markets, much of the Nasdaq’s strength has become confined to just a handful of stocks. Apple and Tesla are two of the most noteworthy, both undergoing a stock split on August 31.
Tesla and Apple Charge Higher
While stock splits do not mathematically alter the value offered by a share of stock, they can make shares more affordable. In the case of Apple, a 4-for-1 split saw prices drop to the $130 range from more than $500 a share. Tesla, on the other hand, saw prices fall beneath $500 from nearly $2400 after a 5-for-1 split. The change in share prices for both Nasdaq-listed companies should allow more investors the opportunity to gain exposure.
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As a result, financial news media has suggested a surge in interest for both of these stocks may be likely as a new wave of retail traders enter the fold and try to capitalize on the incredible gains of both AAPL and TSLA. That said, novice investors looking to try their hand in trading by owning Tesla stock may be destined for a trial by fire as Tesla exhibits bubble-like symptoms.
Sentiment Analysis for Forex Trading
In the attached video, we take a quick look at the fundamentals of Tesla and why its stock may have rallied so high. Suffice it to say, there is likely some serious mispricing going on and many seasoned traders have equated recent Tesla price action to conditions during the Dot-Com Bubble.
While a bursted-bubble could disproportionately impact owners of Tesla stock, a swift reversal in Tesla’s share price could also hurt the broader Nasdaq down the line as recent gains have been largely fueled with assistance from the electric automaker. As the Nasdaq presses higher on the back of newfound market cap that is not founded in reduced costs or newfound revenue, it becomes more difficult to justify the current valuation of the index.
Nasdaq 100 Price Chart: 4 – Hour Time Frame (April 2020 – September 2020)
Further still, price has climbed near the top of an ascending channel that has helped guide the Nasdaq 100 higher since mid-April. With gains being sourced from inorganic growth in just a few hot technology names and technical resistance narrowly overhead, the Nasdaq 100 looks vulnerable at a time when volatility historically rises and in a month when stocks are particularly weak.
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With that said, traders and investors should be wary of the risk-reward profile in some of these hot stocks at this point in time as the potential gains may not outweigh the possible risks. Still, price has exhibited few material signs of an imminent reversal, as current conditions look to be more of a gathering storm rather than an immediate crash. Either way, the Nasdaq 100 may be entering a rocky couple of months ahead and Tesla could be on the cutting edge. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.
–Written by Peter Hanks, Strategist for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX