Tech Stocks Are Surging

The Nasdaq 100 is on a tear … why Luke Lango believes it’s just the beginning … how to trade it if you’re skeptical … two trades courtesy of our CEO, Brian Hunt

As I write Friday early-afternoon, the Nasdaq 100 is on pace to close out its best quarter since 2020, surging nearly 20%.No one is less surprised than our hypergrowth expert Luke Lango.For months, Luke has urged investors to take advantage of discounted prices in top-tier technology stocks, warning there’s a limited window of time before prices race higher.Well, prices are racing higher. But if Luke’s right, even though the lowest entry price might be in the rearview mirror, major gains are still ahead. Let’s jump to his Daily Notes from Innovation Investor:

This is the start of a multi-year uptrend in growth/tech stocks……The path of inflation will determine the path of the Fed, and the path of the Fed will determine the path of the stock market.In short, that means the path of inflation will ultimately determine the path of the stock market. We continue to observe signs that inflation is crashing and believe we are either at or are just one hike away from “peak rates.”Fed policy will shift dovish in the coming months, and stocks will push higher… It may not feel like a new bull market yet because stocks aren’t exactly melting up in dramatic fashion. But it is a new bull market – we bottomed in October 2022 and have been grinding higher ever since. That’s nearly six straight months of an uptrend.

Behind this bullish vision is the belief that central banks are in a transition back toward accommodative policy

Let’s go to Bloomberg for more details:

[The Nasdaq 100] has the Federal Reserve’s recent largess to thank for its gains. The tech gauge soared [19]% in the first quarter, buoyed by the Fed’s loosening of its balance sheet after Silicon Valley Bank’s collapse earlier this month led to worries about monetary conditions tightening…The chart below shows how powerful Fed easing can be for tech shares, which struggled last year when the central bank began tightening. The Nasdaq’s latest 10% leg up coincided with the Fed’s balance sheet expanding by $400 billion.It’s clear that the tech rally will continue if the Fed continues to boost liquidity.

Chart showing the relationship between more Fed liquidity and higher tech stock prices
Source: Bloomberg

Based on Bloomberg’s analysis, we should immediately ask – how likely is it the Fed will continue to boost liquidity?

The Fed finds itself in an awfully uncomfortable position

It’s stuck between the need for tightening to continue its war against inflation, as well as the need for loosening to stave off a daisy chain of economic collapses in the banking/lending sector.If the worse comes to the worst, what does the Fed protect? The purchasing power of the dollar, or the U.S. banking industry?My money is on banking, given that a banking/lending collapse would take down, well, everything.So, what’s in worse shape today? The state of inflation? Or the condition of banking/lending?Well, we know inflation has been dropping – not across the board – but we’re seeing progress. If we’re looking for one big headline representation of this, just look to the Consumer Price Index which has fallen from 9.1% last June to 6% last month.And just this morning, we received another encouraging piece of data. The personal consumption expenditures price index excluding food and energy increased 0.3% in February, which is less than the 0.4% Dow Jones estimate.On a year-over-year basis, core PCE increased 4.6%. That’s a slight deceleration from January’s level.Overall, yes, inflation remains high, but momentum is clearly moving in the right direction. And further data suggest we’ll see more good news as we move into summer.Meanwhile, what about banking/lending?Let’s jump back to Luke’s Daily Notes:

The Fed’s preferred financial stress index is showing signs of extreme stress.The St. Louis Fed Financial Stress Index is the Fed’s preferred measure of financial stress because of its comprehensive view of the markets’ various yield spreads.That index has popped above 1.5, which signals extreme financial stress in the system right now.Whenever the St. Louis Fed Financial Stress Index peaks above 1.5 (which is very rare), the Fed has already begun its cycle of cutting rates.This is yet another data point suggesting we are at “peak rates” with the Fed.

From this analysis, it appears banking contagion poses a greater threat to our economy than current inflation levels. Hat tip toward accommodative policy from the Fed.

How might you take advantage of this surge in tech stocks and the potential for more gains if you’re unconvinced we’ve begun a broader bull market?

By trading it.If you grew up in the church of “buy and hold” like I did, it can be slightly uncomfortable to think of hopping in and out of the market.But if you’re skeptical about long-term bull market conditions, yet you want to take advantage of obvious strength in the market, then a shorter-term, opportunistic mindset is your better alternative.This prompts a question…If you’ve never traded, where do you start?Well, one approach from Luke that we’ve highlighted before here in the Digest is “stage analysis.”It’s pretty simple…A stock is always in one of four unique stages: 1) going sideways at a bottom, 2) going up, 3) going sideways at a top, or 4) going down.Stage analysis is the science behind figuring out which of these four stages a stock is in at any given point in time.

Chart showing the four stage of a "stage analysis" investment cycle

The key to profiting through shorter-term trading is by correctly identifying Stage-2 breakouts and exiting as a Stage-3 sideways pattern turns into Stage-4 declines.Beyond analyzing the price-chart itself, there are a handful of indicators that help investors make this decision – for example, volume, relative strength, and the shape of a stock’s moving averages, to name a few. Luke uses high-powered computers running multi-variate algorithms to find these potential Stage-2 breakout stocks.Next Wednesday at 4PM EST, Luke will be holding a special live event to explain this approach in greater detail. We’ll bring you more about the event in the days to come. But you can reserve your seat today by clicking here.Bottom line: If you want to benefit from today’s rising market without necessarily committing to it, Luke will help you better understand how to do that next Wed.

In the meantime, here’s a trade idea straight from our CEO Brian Hunt

As regular Digest readers know, beyond helming InvestorPlace, Brian is an accomplished trader himself.On Tuesday, he sent fellow-Digest-writer Luis Hernandez and me an email with a trade idea – the ETF HACK.For any readers less familiar, HACK is the ETFMG Prime Cyber Security ETF. It holds leading cybersecurity companies including Cisco, CrowdStrike, Fortinet, and Palo Alto Networks to name a few.If the name sounds familiar, it could also be because we’ve profiled it here in Digest as one of Eric Fry’s recommended long-term holdings in Investment Report. Subscribers are up 15% in the position, and Eric remains bullish today.Returning to Brian, what is the catalyst he’s identified that makes HACK alluring from a trading perspective?Its giant compression pattern.Here’s the chart from Brian illustrating what’s happening.

Chart showing HACK forming a long-term compression pattern in its price chart

When a stock exhibits this type of compression pattern, it’s quite common for it to eventually explode out of the wedge. Though it’s not guaranteed the direction of that explosion will be “up,” HACK’s price-trend since last October is bullish, and growing buying pressure in the broad market also bodes well.For traders wanting to take a swing at the plate here, Brian suggests a tight stop-loss around the $45.50 level (which gives a cushion of about 3.7% based on its current price of roughly $47.25).If HACK begins to break out of its compression pattern to the south, mind your stop-loss and exit the trade. If HACK shoots north, hang on to your hat and enjoy the ride.Though this isn’t an official trade recommendation, we’ll check back in the weeks to come to see where it goes.

For one final trading idea, we’ll revisit Brian’s recommended sector from two weeks ago

In our March 16th Digest, we featured research from Brian about the explosive gains happening in the biotech space.The origin of that Digest was another email that Brian had sent to various InvestorPlace personnel, highlighting how many biotech stocks were on the 52-week-high leaderboard. Some examples from that Digest included:

  • Cabaletta Bio (CABA) – 419.64%
  • Ardelyx Inc (ARDX) – 335.13%
  • Verona Pharma Plc ADR (VRNA) – 312.81%
  • Meihua International Medical Technologies L (MHUA) – 308.78%
  • 89Bio Inc (ETNB) – 259.50%

Well, the biotech gains keep coming.On Monday, Brian sent a new email, aptly titled “The biotech bonanza keeps on going…”This time, Brian included a list of the biggest monthly winners. They’re virtually all biotech stocks.

Chart of the 1-month stock market winners showing tons of biotechs high on the board

If you’re having trouble reading the chart, the three best-performing biotechs are reporting monthly gains of 486%, 218%, and 190%.Again, that’s in one month.Circling back to Luke, I wouldn’t be surprised if many of these surging biotechs are showing up on his stage analysis screens. On that note, a final reminder to join him next Wednesday for all the details of this powerful market approach.In the meantime, check out HACK and some of these biotechs.If the market wants to surge, let’s take advantage.Have a good evening,Jeff Remsburg


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