Nasdaq could hit 4000 this week if supported by solid tech earnings

Today, risk is back on the menu as far as stocks are concerned. Both European markets and the major US index futures are higher, pointing to a positive open on Wall Street later this afternoon. There are two main drivers behind the firmer sentiment today. Firstly, geopolitical concerns have eased a tad after the pro-Russian rebels in Ukraine finally handed over the black boxes from the downed flight MH17. Secondly, investors are positioning themselves up for what is set to be the peak of the US corporate earnings season, and apparently they expect to see some more positive results. Lots of household names will publish their quarterly numbers before and after the bell and by the end of today we could have some insights about the health of the US and world economies. For example, results from the likes of Apple and Microsoft are good indicators about discretionary consumer demand and also business spending. If these tech giants and more of the other multinational US companies top estimates then it could send the markets soaring higher today and possibly throughout the week.

Technical outlook

On Tuesday of last week we suggested that there could be a “pullback of some sort” on the Nasdaq 100 as the index approached 3940/5, a level which corresponds with the 161.8% Fibonacci extension level of the corrective move we saw between March and April. We argued that this is a potential exhaustion area for the rally and that there could be some hesitation there. Sure enough, the Nasdaq and the other US indices sold off on Thursday as investors found a perfect excuse in the form of the unfortunate plane crash to book profit there. However, by the very next day the Nasdaq managed to make back its entire losses, thereby created a bullish engulfing candle on its daily chart. This more or less confirmed that Thursday’s move was predominately caused by profit-taking and that the buyers remained in full control of things. Monday was case of “pause for breath” due to the lack of any fundamental drivers, but today could see a continuation of the rally – especially if the tech earnings come out ahead of expectations. Meanwhile the RSI has eroded its corrective trend and has managed to hold above the key 60 mark. This is a bullish development from a momentum point of view. Thus the door is now open for the Nasdaq to potentially reach the next psychological milestone: 4000. The corresponding psychological level on the S&P 500 is at 2000. Therefore speculators should watch both indices; if the S&P reaches its milestones first then it could lead to some profit taking on stocks as a whole which could at least delay the Nasdaq from hitting 4000.