Nasdaq Composite could see a year-end rally, despite weakness in coming weeks, says David Rosenberg 

The Dow Jones Industrial Average
DJIA,
the S&P 500
SPX
and the Nasdaq Composite
COMP
have risen 4.4%, 15.9%, and 30.9% year-to-date, respectively, according to FactSet data. The Dow gained 0.1% so far this week to 34,660, while the S&P 500 and the Nasdaq Composite fell 0.1% and 0.4% to 4,511 and 13,957 Friday afternoon, respectively. 

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Rosenberg, former chief North American economist at Merrill Lynch and now president of Rosenberg Research & Associates Inc., said their primary medium-term momentum indicator for the S&P 500 has been in a downtrend since late-July, while the momentum is weak for 10 of the index’s 11 sectors, except energy. 

“Together, this combination suggests that the broad-based momentum pressures are on pace to continue into November,” wrote Rosenberg in a Friday note. 

The gauge of large-cap U.S. equities is also in the process of reversing the post-March uptrend, according to Rosenberg. “This increases the risk for a coming test of chart and trend support in the 4,195-4,100 area.”

Also see: Wall Street’s most bullish strategist warns of choppiness in stocks, still sees the S&P 500 touching a record high this year

For Nasdaq Composite, the index is likely to remain under stress in the weeks ahead, due to a combination of trend and momentum pressure, noted Rosenberg. 

The index has broken below its post-March trend line, which served as a support line from March to August, but has appeared to be a resistance line in recent weeks. Momentum has also been weak since early August and is likely to remain in a downtrend through late October. 

“A decline through 13,161 has the potential to be a breakdown that allows for additional weakness towards 12,700-12,600 and possibly 12,200,” Rosenberg noted.

Still, the long-term momentum of the Nasdaq Composite pointed to a December-January peak. 

“This condition suggests that, even allowing for a pullback, a subsequent year-end rally will likely have bearish long-term/primary trend implications,” Rosenberg wrote.