We do have a chance for stocks to turn positive right as Wall Street enters the heart of the third quarter earnings season. Maybe the numbers and guidance will bump up the bulls.
As you’ll see on the chart below, the NASDAQ has been trading in a descending price channel characterized by lower lows and lower highs. Last week, the NASDAQ rallied off of 13,000, making it a key level of support, to the index’s 50-day average.
Sellers showed up when the NASDAQ hit the technical benchmark and knocked stocks backwards last Thursday and Friday, which was expected. Buyers returned to action on Monday, lifting the NASDAQ to its 50-day average once again.
A little more love from Wall Street and the tech-dominant index could pop a couple of buy signals at once. It would break the upper boundary of its three-month trading range and establish a higher, short-term low, followed by a higher, short-term high. We call that walking up the stairs and it’s also confirmation of an uptrend. A one-two punch of technical buy signals.
We aren’t there yet, but close.
In the event the NASDAQ doesn’t break through on the bullish side, then support at 13,000 becomes key. A close below it would be a lower low following a lower high or walking down the stairs and bearish confirmation. The rising 200-day moving average of 12,674 is the most logical destination if traders can’t hold 13k.
For now, let’s be optimistic and hope the NASDAQ can close higher than the upper guardrail of resistance around 13,800. If it happens, investors might consider adding Invesco QQQ Trust (QQQ).
It’s a little worrisome that SPDR S&P 500 ETF Trust (SPY) outperformed QQQ in the last week. As regular readers know, we much prefer the NASDAQ to be the leading index as stocks tend to perform their best when the NASDAQ pulls the cart.
Energy and Financials dominated the market last week as the top performers on our index/sector leaderboard. Oil and Gas are worth keeping close watch on as developments play out in the Middle East. An expansion of the war would almost guarantee oil’s price legging higher, maybe even aggressively.
An exchange-traded fund (ETF) like Energy Select Sector SPDR Fund (XLE) could offer investors some protection from rising prices if the war expands and prices rock higher.
If the NASDAQ manages to land the one-two technical punch outlined above, then tech funds should lead the way. Something like Technology Select Sector SPDR Fund (XLK) could be worth consideration on a bullish breakout.
We’ll be patient until we get a buy signal from the NASDAQ. We’ve learned painful lessons from days gone by. As a mentor said, “It’s better to be out of the market wishing you were in, than in the market wishing you were out.” In other words, losing money sucks more than making money feels good. We’ll let the market tell us when it is time to get in.