The government shutdown was averted before the stroke of midnight and the NASDAQ responded positively to the people’s business of spending $7 million per minute without interruption.
On its chart, the NASDAQ pivoted higher last Thursday and rallied nicely to start the new week. However, it’s not time to put on the horns and get all bullish. On the chart below, we see a few sticking points for the about face to overcome before turning on the go sign.
First up, the index set a lower high than the previous high, followed by a lower low than the previous low. We call that walking down the stairs and it’s considered confirmation of the trend, lowered in this case.
The second obstacle is the gap down from roughly 13,450 to 13,300, which is also considered confirmation of the downtrend. The NASDAQ will need to fill in the 150-point gap and close above 13,450. However, sellers tend to appear when the gap is closed. It’s classic technical analysis.
Breaking the head and shoulder neckline we’ve written about for the past month could be the hardest of the challenges to overcome. Unless the technical sell signal was a complete head fake, getting beyond the neckline in the neighborhood of 13,400 might be a tall task as it lines up with gap down resistance.
What we want to see happen is the NASDAQ break through all the overhead technical debris, take on some profit taking, rebound before last week’s low of 13,000 and start walking up the stairs with a higher high, reversing the current pattern of walking down the stairs. The process of a reversal could take a couple of weeks to play out.
For now, our experience tells us to sell underperformers into rallies and then reallocate the cash into market leaders on the dips. Just keep in mind, if the NASDAQ slips and closes 13,000 and sets a fresh cycle low, the downtrend would be confirmed again and the rising 200-day average of 12,532 could be the most logical landing spot.
Invesco QQQ Trust (QQQ) running faster than SPDR S&P 500 ETF Trust (SPY) for the first time in the last few weeks is a step in the right direction. However, QQQ still needs to navigate the technical obstacle course we outlined above.
Technology and Biotech took six of the top 10 positions on our industry/sector exchange-traded funds (ETFs) leaderboard last week with ARK Next Generation Internet ETF (ARKW) grabbing the top spot. Yeah, but a lot of these ETF charts have a similar look to the NASDAQ, which makes us uncomfortable adding any of them until they put forth a more positive tone.
We can’t add anything here with the current technical outlook decidedly tilted towards a bearish outlook.