Stocks could be headed for a fall, albeit probably just a small dip for now. The NASDAQ recently broke its short-term uptrend, which is a negative. However, the index remains above the longer-term trend. As you’ll see on the chart below, 2023’s line connecting cycle bottoms crosses streams with the NASDAQ’s 50-day moving average. They should act as a double-layered technical support if Wall Street takes some profits here.
A bearish MACD cross-under adds some weight to the idea that stocks are in a place that might favor some selling in the immediate time frame. The question is whether it’s a buy the dip opportunity or if it’s the beginning of a new down phase?
For now, we lean slightly into the buy the dip category. There is a lot of talk about a pending economic slowdown and the possibility of the Federal Reserve switching course and lowering interest rates. We also feel the uncertainty over the debt ceiling adds to the current slightly negative posture stocks have taken in the last week or so.
The debt ceiling will likely take care of itself as the funding deadline approaches. In our opinion, President Biden and the House Republicans will reach some sort of deal, which will essentially kick the can down the road. We feel like the “deal” will ease concerns and possibly be the trigger that sets stocks back in forward motion in anticipation of a new direction from Jerome Powell and the Federal Reserve.
Of course, there is a risk that the debt ceiling fight drags on and that’s when a temporary selloff could turn into a route. The NASDAQ might be in for close to a 1000-point decline if political negotiations between Democrats and Republicans drag on. We put the odds of a drawn-out fight over the debt ceiling at 10-20 percent. Both sides don’t want the heat.
For now, investors might be wise to take a cautious stance. If the NASDAQ dips to its 50-day benchmark, it could be a buying opportunity. If stocks don’t slip and the index closes above 12,250, it would bust through a triple top, which would be bullish and likely propel prices higher.
SECTOR WATCH
First up, SPDR S&P 500 ETF Trust (SPY) outperformed Invesco QQQ Trust (QQQ) once again. It’s been our experience that stocks tend to do better when the NASDAQ is pulling the cart versus riding in it.
Healthcare was the dominant force last week, owning the top two and five of the top spots on our sector/industry performance leaderboard. ALPS Medical Breakthroughs ETF (SBIO) and iShares U.S. Medical Devices ETF (IHI) held down number one and two.
Many of the top 10 exchange-traded funds (ETFs) look a bit overbought and could settle back if we’ve made the correct call on our market analysis.
STOCK WATCH
We won’t add anything here until the NASDAQ hits the 50-day and bounces or closes to the better side of the triple-top at 12,250.
Rich Meyers