The NASDAQ is on the verge of busting free like MAGE at the end of the Kentucky Derby. Last week, we talked about how the index keeps bumping its head on resistance at 12,250. The NASDAQ previously touched and turned south the four previous times. Is the fifth time the charm?
Last week, the Federal Reserve raised rates, as expected, but said that rates are likely to go on pause as regional banks are struggling because of higher rates. Wall Street believes the economy is slowing, inflation may have peaked, but it’s not gone yet, and lowering rates might be Jay Powell and the Fed’s next move.
Remember, the stock market is considered a leading indicator. It acts in anticipation of expected developments in the next six to 12 months. If Wall Street has made the correct call that interest rates are at their highest and will likely be lower this time next year, stocks would likely head higher.
As you’ll see on the chart below, if the NASDAQ goes any higher than it closed on Monday, it runs clear of technical resistance and should be poised to go higher, maybe as much as 1000 points. One way or another, the NASDAQ is coming to the point where the Street will have to pick a side, up or down.
Resistance at the top stretches back to early February. Meanwhile, the line of support connecting bottoms continues to rise and the two are coming to a point, a decision point. If bulls can carry the NASDAQ across the resistance line, 12,250 becomes the new bottom. On the other hand, if bears win the debate and take the index below the bottom trendline, it could be a while before the NASDAQ challenges 12,250 again. It would not be surprising to see it dip to the 200-day moving average of 11,496 in the bearish case.
With space between the top and bottom running out, investors should know who wins in short order. Index investors might consider Invesco QQQ Trust (QQQ) on the breakout or ProShares Short QQQ (PSQ) on the breakdown.
SECTOR VIEW:
QQQ outperforming SPDR S&P 500 ETF Trust (SPY) for the second week in a row is a positive for the bullish case above. As we’ve said many times before, the NASDAQ is the Mary of the Markets, where it goes the others are sure to follow.
ETFMG Alternative Harvest ETF (MJ) led the way in the last week, gaining more than 6 percent. Aside from a pair of healthcare-related exchange-traded funds (ETFs) holding spots two and three on our performance leaderboard, the top 10 was a mix of sectors/industries from the web, clean energy, mobile payments, consumer discretionary, artificial intelligence (AI) and homebuilders.
AI has been in the news a lot lately and AI Powered Equity ETF (AIEQ) just bounced off its 52-week low and broke its downtrend line, a possible sign of a reversal. As long as AIEQ doesn’t close below its 52-week low of $26.62, the stronger the chance it’s about to pivot higher.
STOCK VIEW:
Once again, we’ll sit on the sidelines until the NASDAQ picks a winner, which could come before we meet again next week.
Rich Meyers