Bulls to the left of me, Bear to the right, here I am stuck in the middle with you…
That’s about where the NASDAQ is today, essentially in the same position as the index found itself in last week. It is stuck in the middle of resistance at 12,250 and support at 11,900.
Stocks moved higher to start the new week. Unfortunately, the advance was accompanied by light volume for a positive day. It could be a sign that sellers have run out of stocks to unload. Or, it could mean Monday’s gains could be erased with minimal selling.
Monday’s low touched the ascending trendline connecting recent bottoms. From a technical perspective, the tilt remains bullish as long as prices sit atop the line of support. As you’ll see on the chart below, Wall Street will be at a decision point shortly.
The room between the rising support line as resistance at a double top is disappearing. Investors will have to pick a side when there is no more room between the two. In other words, the NASDAQ is on the verge of either popping or dropping.
From our experience, this setup tends to favor bulls. The NASDAQ could have close to 1000 points of upside if bulls win the debate. On the downside, the 50-day moving average could provide a safety net at 11,768.92. The NASDAQ closed Monday at 12,157.72 or 388.88 points. As we pointed out last week, close to a 3 : 1 reward-to-risk profile. Again, favorable for the bullish case.
Index investors might consider Invesco QQQ Trust (QQQ) if/when the index closes above 12,250. We’ll wait for the index to pivot higher in the lesser likelihood the bottom falls out at support.
SECTOR VIEW
First up, SPDR S&P 500 ETF Trust (SPY) outperforming Invesco QQQ Trust (QQQ) could be a fly in the ointment of our stocks are more likely to break resistance before support opinion. We consider the NASDAQ to be the Mary of the Market, where it goes others are likely to follow. As such, stocks tend to do better when the NASDAQ is the leader and not a follower.
Three of the top 10 performing industry/sector exchange-traded funds (ETFs) were healthcare related. Two of the three were ranked second and third; ALPS Medical Breakthroughs ETF (SBIO) and SPDR S&P Biotech ETF (XBI).
ETFMG Prime Mobile Payments ETF (IPAY) held the number one spot and looks poised to go higher, especially if we’ve made the correct call that the NASDAQ bypasses 12,250. However, investors would be wise for the breakout before adding IPAY to their portfolios.
STOCK VIEW
As much as we’d like to be in front of the next wave higher, experience has shown us too many times to count, it’s better to wait for confirmation than force trades on individual stocks. Hopefully, we’ll be back here next week with a company where we have a positive opinion on its next move.
Rich Meyers