Fed commentary could be the next catalyst for Nasdaq, tech stocks

Yahoo Finance's Jared Blikre breaks down Citi bears betting on the end of a Nasdaq rallies and what a rise in the Nasdaq means for sentiment leaders such as bitcoin and the ARK Invest flagship ETF.

Video transcript

RACHELLE AKUFFO: Tech stocks might be coming back under pressure. Citi reporting that bets on the end of the rally in the NASDAQ are rising. Here with more, Yahoo Finance's Jared Blikre. Now, obviously, after what we saw to the start of the year, it's going to be a tough break for tech at the moment.

JARED BLIKRE: Yes, it is. And by the way, we still are in the best year since 2019, best start to a year, about 25 days-- trading days in. That's pretty significant because it is the market reversal from last year. And I'm looking at a note just in broad strokes today. Citi noticing that there are bearish bets on the NASDAQ being placed. And let me just show you what a one-year chart looks like. So we have this low that happened basically in the middle of December. And we have risen almost 20%.

Now, some will call that a bull market, and we can discuss that in a second. But if, in fact, bearish bets on the market are increasing at a rapid pace, that creates a potential for a short squeeze. And that's another thing that Citi is noting. That means that shorts, people are betting against the market, betting on it to go down. They have to cover their bets. They might have stops in place, whatever.

When they get out, that fuels the rise to the next level. Accidentally changed to the Russell 2000. Here we are, back at the NASDAQ. So, all in all, with this potential catalyst that we have today, with Powell speaking at the Economic Club in Washington, DC at 12:40 today, he may be walking back or doubling down on some of the statements that he said that he came to last week.

And let's take a look at the price action from last week. Now, this is a three-month chart. So here is that big green candle. This was last Wednesday, and that was the highest point in several months there. Now, when that happened, a lot of people were a bit surprised because a lot of people noticing also that the Federal Reserve doesn't necessarily like it when the stock market is up, especially on these big Fed days, when they're trying to convince the market of their hawkishness.

Nevertheless, a lot of market participants interpreted that day as dovish. So we exceeded that to new relative highs the following day, and now we have come off quite a bit, especially with that hot payrolls number. So, today could provide Powell the opportunity to get a little bit more hawkish or just to reaffirm the market participant, I guess their notions of his dovishness would be reinforced from last Wednesday.

Also want to point out that the US dollar has been gaining strength over the last few days. So that's another metric that I'm going to be looking at. But here are the leaders in the market that we've seen since the beginning of the year. BITO in the upper left, I'm using that as a proxy for Bitcoin, followed by meme stocks, followed by the Ark Invest, those that is the disruption sector right there, followed by chip stocks, all of that I would expect to see a momentous rise, if we were to exceed those prior highs in the NASDAQ. And again, I think that's going to come down to this potential catalyst we have with Powell today in just a little bit. So we'll have to see if that happens. But again, it comes down to definition sometimes, Rachelle.

RACHELLE AKUFFO: And to that point, Jared, I mean, we talk a lot about when the bearishness ends and the bull market begins. But let's take a step back here and to how we actually define a bull market.

JARED BLIKRE: Yeah, let me point something out because there is no strict-- there is no universally defined bull market that everybody agrees on. Now, if you're just saying the market has risen 20% off of its low, we are almost there right now. But guess what? In the NASDAQ, this happened last June or so. We saw a 20% rise. And guess what? That 20% occurred at the very top.

So there were some headlines in the middle of last year, saying, oh, NASDAQ a new bull market. Does that give the all clear? Certainly not in this case. And you go throughout history, there have been a number of instances where it's worked out. And in fact, the majority of the cases, it works out where if the market is up 20% from the lows, it's going to continue along that path. But about one in four to one in three times, it does not work out well.

And particularly in bad bear markets with recessions, we don't know if we have a recession yet, but we'll have to see. In 2008, we had a signal in December. That was wiped out. Finally had a good one the next year. And in 2001, 2002, we had no fewer than four bad signals. So not necessarily the all-clear. Watch out for those headlines.