More Gains Are Likely on the Way for These Stocks

A major stock index may have just gotten the “hot hand”…

You know this term if you’re a basketball fan. When a shooter scores a few baskets in a row, they’re likelier to keep on scoring. Their hands are “hot.”

The same phenomenon can be seen in the markets…

When an asset closes higher week after week, it tends to keep going up.

Simply put, momentum matters. And right now, the Nasdaq Composite Index has it…

The tech-heavy index is on its best run in half a year. It suffered when growth stocks got hammered at the start of 2022. But then, last Friday, the Nasdaq marked four consecutive weeks of price gains for the first time in six months.

You might think it’s too much of a bounce. You might even think you’ve missed the rally… and that it’s time to bet on the inevitable pullback.

History says this is a bullish move, though. And it means more gains are likely on the way.

Let me explain…

This is the first sustained run-up for the Nasdaq in some time.

Again, the index just finished four consecutive weeks of gains for the first time in six months. And that only caps off the summer rally…

Overall, the index has climbed nearly 23% from its low on June 16. Take a look…

It’s an impressive turnaround. After all, the Nasdaq lost about 33% of its value from its peak last November to its June low… And it has been in a bear market since March.

So if you’re gun-shy after months of losses, that makes sense. But history shows this index has more upside ahead…

To determine this, I looked at every time the Nasdaq had a new monthlong breakout. I went all the way back to the index’s creation in 1971.

To put it simply, setups like today’s tend to precede even more gains. Take a look…

The Nasdaq has been a solid performer for 51 years. It has returned about 4.8% in a typical six-month period, and 9.9% in a typical year.

But according to history, you can do even better when you buy after four straight weeks of gains…

The returns were about on par for the first six months, at 4.6%. But if you held the index for a year, double-digit returns were likely… The typical gain was 14% a year after buying the rally.

Even better, this setup had a high probability of winning. Of the 31 times the indicator flashed, 24 were positive over the next year, for a success rate of 77%.

I’m not pounding the table on the Nasdaq just yet. I want to wait until the index crosses its 200-day moving average (200-DMA) before going all-in.

The 200-DMA indicator is exactly what it sounds like. By tracking the rolling average of closing prices over the last 200 days, it reduces the “noise” of daily moves. It acts as a clear trend line.

When the Nasdaq crosses its 200-DMA, we’ll know the uptrend is firmly in place. At that point, it will become a strong buy. But if you can’t wait, and if you can tolerate a little risk… today’s rally is a great opportunity to jump in.

Good investing,

Sean Michael Cummings

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Source: Daily Wealth