Not All Who Wander Are Lost, But Tech Stocks Might Be Found: A Wizard's Wager on the Nasdaq

A Bungee Cord or a Balrog's Ascent?

Hoom! It seems the tech sector much like a hobbit after second breakfast has bounced back with surprising vigor. The Nasdaq 100 ETF (QQQ) after plummeting faster than a Nazgûl has risen by over 20% since early April. One might say 'Fly you fools!' but I prefer to study the embers before leaping into the abyss or the clouds. Are we merely seeing a temporary reprieve or is this the start of a new age? Time as always will tell.

One Does Not Simply Ignore the S&P 500

The S&P 500 attempts a nine day winning streak a feat as rare as a polite Orc. The Nasdaq Futures contract (June) too has bravely reclaimed 20,000 after almost touching 16,000 in less than a month. The contrarian within me whispers 'Sell it you fool!' But the echoes of April's volatility still ring in my ears. The market's behavior has become as unpredictable as a Took on fireworks night.

Risk: Know It Before You Need It!

Defining risk my friends has never been more crucial. It is like knowing the password to Moria – essential for survival. The Nasdaq 100 remains roughly 10% below its all time highs. The under invested or those shorting equities might fuel a 'melt up' in May. This could be quite the spectacle though hopefully less fiery than the fall of Gondor.

Technicals: The Stars of the Market

Technicals they are like the stars in the night sky they seem important in this current market setting. A test of the 200 day moving average looms and must be paid attention to. Since trade tariffs were clumsily flung into the market the market has been emotional and very uncertain which makes the technical aspects of the market even more important.

Earnings: A Tale of Two Surprises

Do I care about earnings? Of course! It is akin to asking if a wizard cares about his staff. This season has surpassed expectations like finding lembas bread when you are lost in the Mines of Moria. Approximately 73 76% of S&P 500 companies beat earnings per share estimates while 64% exceeded revenue expectations. The blended EPS growth rate is a remarkable 10.1% to 11.7% year over year leaving the initial 6.6% consensus estimate in the dust! Revenue growth tracks at 4.6 4.7% YoY surpassing expectations. This marks the seventh consecutive quarter of YoY earnings growth.

A Wizard's Gamble: The Call Spread

Now for a little magic. A call spread: Buying the 5/30/2025 QQQ $490 Call for $11.50 and selling the 5/30/2025 QQQ $505 Call for $5.00. This little concoction costs $6.50 or $650 per spread. If the spread fills out it risks $650 to make $1500 resulting in a net profit of $850. Such risks must be weighed carefully. Remember 'It is not the strength of the body but the strength of the spirit.' (Disclosure: I may or may not have a similar arrangement… a wizard never reveals all his secrets!).