Nasdaq 100 fails to sustain upside momentum, hinting at exhaustion top​​​

​​​Is the Nasdaq 100 in the process of topping out?

​The Nasdaq 100, with a price-to-earnings (P/E) ratio of 41.24, and year-to-date performance of over 16%, to some analysts is looking increasingly toppish. This P/E ratio is based on a stock price of $71.75 per share and an earnings-per-share (EPS) of $1.74. This is a 41% increase from the average of 29.30 over the previous four quarters, making it potentially over-valued. 

​The fact that the July record high at 20,690.97 has been followed by a swift 15% decline at the beginning of August on fears that the US economy is heading towards a hard landing has spooked some investors.

​Bargain hunters made the most of the sharp decline with some making an over 10% profit within a couple of weeks as the Nasdaq 100 regained most of its previously lost ground by rising to its 22 August peak at 19,938.89.

​Nasdaq 100 daily candlestick chart

​Since then another 7% drop has been seen within the following two weeks before it headed back up this week.

​This increased volatility near the Nasdaq 100’s all-time high is seen by some as an early warning signal of the long-term uptrend running out of steam. After all, the index has risen by over 90% in the past couple of years.

​Nasdaq 100 weekly candlestick chart

​US November presidential election

​It is possible that the current corrective phase ahead of the November US presidential election turns out to be like the July-to-October 2023 one which was followed by another bull run. Then again, a more substantial decline and bear market might also be on the cards. Since the last bear market dates from 2021-to-2022, it is unlikely that it’ll be followed this soon by another one, though.

​Nonetheless, the fact that volatility has increased significantly over the past couple of months, shows that investors in the mainly technology-driven index have become more jittery. Furthermore, with the so called ‘magnificent seven’ stocks making up 32% - the largest ever concentration - of the index, the risk of a potential bear market forming if these underperform, is significant.

​From a technical analysis point of view the long-term uptrend is intact and will remain so, as long as the April and August lows at 17,435.39-to-16,973.94 underpin. This support zone giving way remains a risk, though, especially since September and October tend to historically be months in which the US stock market declines in US election years.

​S&P 500 Index Average Monthly Returns In Election Years (1950-2023)

​According to Elliott Wave analysts, the Nasdaq 100 is already in a bearish abc corrective chart formation. A fall through the April and August lows would probably trigger a sell-off to below the November 2021 high towards the 15,932.05 July 2023 peak. The next lower 200-week simple moving average (SMA) at 14,631.64 and the October 2023 low at 14,058.33 also represent possible downside targets. Around these levels, were they to be reached at all, a long-term buying opportunity would present itself, however.

​Not all doom and gloom

​A rise and weekly chart close above the 19,938.89 mid-August high would likely lead to analysts dismissing the current gloomy mood and may instead lead to new record highs being made.