The Nasdaq 100 just broke a historical win streak, here’s what could likely happen next

Posted by jbrumley on June 29, 2017 5:30 PM
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By Annie Pei, CNBC

The Nasdaq 100 broke a historical win streak, and according to one technical analyst, investors may have to brace themselves for a possible correction.

Tuesday on CNBC's "Futures Now," Pension Partners' director of research, Charlie Bilello, pointed out that the Nasdaq 100 had been trading above its 50-day moving average for 138 consecutive trading days, which is the index's longest win streak above that trend line ever. But Bilello also mentioned that it didn't change the fact that "some signs of potential weakness" were creeping up in the market.

"We're looking at things like the yield curve aggressively flattening, we're looking at inflation expectations falling and we're starting to see some weakness in the credit markets," he said. "Within the Nasdaq 100 we're seeing the semiconductor stocks, which have been the leaders for a long time now, starting to weaken."

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At Tuesday's close, it seemed that some of those signs played out and dragged the Nasdaq 100 below that 50-day moving average, breaking the streak. Later that day, Bilello put out a note detailing what usually occurs when such a streak in the index breaks.

"Most of the time, there's a pullback or correction, which is followed shortly thereafter by new highs," he wrote. "We saw this in 2011, 2003, 2014, 2006, and 2007. In 2005, a deeper correction ensued which took some time (11 months) to reach new highs again."

In other words, it's likely that a correction is coming, though Bilello thinks the time frame for that is unclear. But history also suggests that the correction will likely be followed by new highs.

The Nasdaq 100 rebounded and opened higher on Wednesday morning, and the index is still up 14 percent year to date. But the Nasdaq 100 is still tracking for its first losing month since October.

From CNBC

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