We aren’t 100 percent sure where the NASDAQ is right now. The index did touch its 50-day moving average as we thought it might, sellers showed up intraday and knocked the NASDAQ backwards and away from the key technical benchmark. Prices recovered some last Friday and gapped higher on Monday to start the last week of August trading.
We aren’t sold that last week’s high at the 50-day was indeed the short cycle peak. Usually, we want the top pivot point to come on a green day and not a red one. That leaves investors in a bit of a fix. If the NASDAQ closes north of the 50-day, is it a higher high and confirmation of a new uptrend, or is it a continuation of the first leg without confirmation?
The NASDAQ’s chart is dropping a few clues that have us tilting towards the bullish case 60/40. It’s possible that the recent bounce up broke the August downtrend. There is a potential positive MACD crossover that only needs another plus day or two to trigger.
There are indications for downside, hence 40 percent for the bearish case. The entire rebound was accompanied by declining volume and the 50-day proved to be a bull repellent last week.
At the very minimum, we have a couple of guardrails to monitor. The 50-day mark is clearly the point to break on the upside and the low pivot point of 13,161.76 to the bottom. The spoils will go to whichever side fails to hold first. Again, we give the slight edge to buyers over sellers. However, immediate downside risk outweighs upside potential.
If the NASDAQ moves into up mode, it could run into difficulty passing 14,000 again at 14,300ish. That’s about 600 points to the top technical target. Meanwhile, the 200-day average is 1,469 points below at 12,236 and that’s where the index could go if the bottom guardrail is busted.
The combination creates a fuzzy picture, slightly bullish technicals paired up with a potential risk-to-reward ratio of close to 2.5 to 1. That’s not something we would normally trade against. As such, the best course of action might be to hold tight and wait for confirmation one way or the other before taking any new action.
SPDR S&P 500 ETF Trust (SPY) continues to do better than Invesco QQQ Trust (QQQ) but only by the smallest or margins last week. If the NASDAQ can overtake leadership from the S&P 500, that would add another weight to the bullish side of the scale.
Despite the NASDAQ lagging the broader S&P 500, tech stocks held the majority of the top 10 positions on our exchange-traded fund (ETF) sector/industry performance leaderboard. Technology leading the way is a positive in our view and could help QQQ power past SPY in the week ahead.
That being said, we still want confirmation before adding a sector/industry ETF to this section. Hopefully, the outlook will be clearer with more visibility when we meet again next week.
We’ll look to add something here, most likely a tech stock, once Wall Street moves into up mode with confidence.