The Nasdaq is partying like it's 1999. Why that might signal a stock-market selloff ahead

The Nasdaq-100 has achieved its longest streak since February 1999, completing 60 consecutive sessions above its 20-day moving average, a technical indicator that BTIG's Jonathan Krinsky suggests could signal an impending stock-market selloff. This extended rally, while less pronounced than its 1999 predecessor, coupled with the current surge in speculative, unprofitable 'story' stocks, raises concerns among analysts about market fundamentals and implies an increased risk of future turbulence, despite broader indices recently reaching new record highs.

Analysis

The Nasdaq-100 has registered a significant technical signal by completing its 60th consecutive session above its 20-day moving average, a streak not seen since February 1999. According to analysis from BTIG's Jonathan Krinsky, this extended run is a potential indicator that the market is overextended and could be heading for a selloff. This technical reading is corroborated by a concurrent surge in speculative assets, such as unprofitable 'story' stocks, which draws parallels to the dot-com era's market froth. However, key distinctions exist: the current rally's gain of approximately 23% is less than half the 50%-plus gain seen during the 1999 streak, and the historical precedent shows that the ultimate market peak in the dot-com bubble occurred more than a year after that specific streak ended. While Krinsky does not believe a market peak is imminent, the combination of the prolonged technical overbought condition and speculative investor behavior suggests a disregard for fundamentals and that the market is overdue for turbulence. This cautionary outlook contrasts with the market's present momentum, as the S&P 500 and Nasdaq Composite continue to set fresh record highs.

Key Decisions for Investors

• Investors should recognize that the Nasdaq-100's 60-day streak above its 20-day moving average signals a technically overbought market, increasing the probability of a near-term pullback or consolidation.
• Given the rising speculative activity, it is prudent to review exposure to unprofitable 'story' stocks and consider trimming positions or implementing stricter risk management protocols.
• While the historical parallel to 1999 suggests a major market top is not necessarily immediate, investors should monitor for a definitive break below the 20-day moving average as a potential catalyst for increased volatility.
• Consider maintaining core holdings in profitable, large-cap Nasdaq-100 constituents while exercising extreme caution towards the highly speculative segments of the market that are showing signs of froth.