Will it be a classic case of buy the hype and sell the news? That’s an old saying on Wall Street and maybe that’s what we saw last Friday when the NASDAQ moved vertically higher. Word spread that the White House and Congress had a debt ceiling deal and the index gained nearly 288 points.
Liftoff followed some early weakness, as we thought might happen in last week’s newsletter:
“For now, we’ll work under the theory that stocks are likely to shed a little in the near term as the NASDAQ moves into extended territory.”
We expected any selling to be more of a buying opportunity than the start of a new downtrend. Thankfully, it looks like we made the correct call.
Unfortunately, Friday’s rally pushed the NASDAQ back into a Relative Strength Index score above 70, again. Like we mentioned in last week’s newsletter:
“As a general rule, a RSI score of 70 or more is thought to be “overbought” and usually attracts some profit taking.”
So, now we have a deal between President Joe Biden and House Speaker Kevin McCarthey. Investors bid up the hype and now, some on both sides, Democrats and Republicans are chirping they don’t care for the compromise. Funny isn’t it? We hear all the time, “the American people want us to compromise…” and when they do come to a common agreement, the knives come out. Anyway, with an RSI reading above 70 and the hype now news, we wouldn’t be surprised to see a replay of last week; some profit taking and then rallying as Wall Street buys the dip.
Just like last week:
“For now, we’ll work under the theory that stocks are likely to shed a little in the near term as the NASDAQ moves into extended territory. Index investors that missed the most recent run might consider using weakness as an opportunity to consider Invesco QQQ Trust (QQQ) in the event that buying a dip is the correct call.”
QQQ continues to outperform SPDR S&P 500 ETF Trust (SPY), which is a bullish indicator in our book. As the NASDAQ goes, so does the overall market. Not surprisingly, the top 10 performers on our sector/index leaderboard were ALL technology related.
NVIDIA Corporation (NVDA) earnings really put some juice into semiconductor stocks with SPDR S&P Semiconductor ETF (XSD) taking the number 1 spot, gaining more than 7.44 percent for the week.
However, many of the tech exchange-traded funds (ETFs) mirror what we see with the NASDAQ, overextended and poised for a pullback. Investors looking for technology exposure might be wise to be patient and see if better prices are available in the near future.
Last week is the theme above and the theme here too. With the NASDAQ likely positioned to take a little off the top, investors could be better suited adding to their portfolio’s top performing tech stocks on a dip rather than adding a new name.
Fingers crossed that we have some headroom when we get together next week.