Nasdaq 100 momentum is unmatched since 1999, so get ready for a crash

It’s time to prepare for a concussion.

The market is sending out some warning signals in the short term. As of Sunday, the Nasdaq 100 — which includes the 100 largest companies, excluding financials, on the Nasdaq stock exchange — had gone 60 straight trading days without closing below its 20-day moving average, a short-term trend indicator.

This is a worrying signal, considering that the last time the Nasdaq 100 maintained such momentum was in 1999, shortly before the dot-com bubble burst.

“The Nasdaq 100 has now gone 60 trading days without closing below its 20-day daily moving average, the second-longest streak in its history (since 1985). The longest ended in early 1999,” said a market analyst in a Sunday note titled “Tighten Your Belts.”

“The main takeaway is that we may encounter some turbulence, although it is unlikely to peak significantly.”

The warning comes as both the S&P 500 and Nasdaq Composite started the week at record highs, again, despite concerns about the Aug. 1 trading deadline and whether the Federal Reserve will cut interest rates at its meeting next week. The earnings season is also expected to contribute to volatility in individual stocks.

However, with reversal indicators showing signs of peaking and seasonal trends weakening, the technical setup is starting to suggest more volatility is ahead. Wall Street’s fear gauge, the CBOE Volatility Index, has been remarkably quiet all month.

More turbulence could be particularly worrisome for riskier assets, such as the ARK Innovation ETF, which has risen more than 12% this month, defying fears of a pullback.

“We were clearly on the fence about ARKK’s move, thinking a pullback was in the cards over the last few weeks. That said, relative to the 100 DMA, it is now 38% above it, having only been exceeded briefly in July 2020.” “We continue to believe a shake-up is warranted.”

The techie expects investors to head to utilities. He said the Utilities Select Sector SPDR Fund has “pre-breakout potential” that could lift it to the low $90s from around $84, where it had been last hovering.