On Thursday Dec. 22, 2022, the stock market crashed after hot economic data heightened fears that the U.S. Federal Reserve would stay on its aggressive rate-hiking campaign in 2023. But amid the brutal selloff, tech stocks did something that implies they may have finally bottomed.
Look closely at the stock market’s price action. Stocks opened the day marginally lower, then crashed throughout the first few hours of trading. By 1:30 p.m. Eastern, all three major stock indices – the Dow Jones, S&P 500, and Nasdaq – were down more than 2.3%.
Then, we reversed course.
From 1:30 p.m. to market close, stocks staged a massive intraday comeback rally. The S&P 500 rallied 1.5%.
That’s pretty bullish. But the really bullish thing is where tech stocks bottomed.
Hitting Bottom
The Nasdaq Composite crashed to around 10,320 in midday trading. That is a very critical technical level for two reasons.
First, the Nasdaq recently formed a double-bottom at 10,320. It bottomed at those levels in mid-October and again found support at those levels in early November. A third successful test-and-hold of these levels would be significant of tech stocks putting in a durable bear market bottom.
Second, the Nasdaq has been in a secular uptrend since the 2008 financial crisis, and that uptrend’s support line is roughly around 10,320 right now. A successful test-and-hold of that multi-year uptrend support line would suggest that the secular uptrend in tech stocks remains intact.
Well, guess what tech stocks did? The Nasdaq Composite crashed to that critical 10,320 level, found support, bottomed, and bounced big off that level to close at 10,476!
That means the Nasdaq has now formed a triple-bottom at 10,320 over the past three months, while it has also successfully tested and held its 15-year uptrend line. There are two major implications of this price action:
- Tech stocks have bottomed.
- They are ready to rebound and resume their secular march higher.
Of course, tech stocks will need a catalyst to shake them out of this bearish funk. But that catalyst is fast approaching in the form of a Fed pause in 2023.
Tech Stocks Are Ready to Soar
That is, most leading data strongly suggests that the economy is slowing enough and inflation is falling fast enough for the Fed to stop its rate-hiking campaign in early 2023. Over the past 40 years, every time that the Fed has paused a rate-hiking campaign, tech stocks have proceeded to soar ~30% or more!
This time will not prove any different.
The technicals tell us that tech stocks may have bottomed right before Christmas. The data tells us that a Fed pause is coming within the next few months. And history tells us that these stocks always soar when the Fed pauses a rate-hiking campaign.
It doesn’t take a rocket scientist to connect those dots.
It is time to buy tech stocks at these generational lows before they soar over the next 12 months as the macroeconomic environment turns increasingly favorable for this sector.
Uncover the names and ticker symbols of the best stocks to buy today ahead of that sector boom.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
