The NASDAQ broke trend last week with the index crossing below the line connecting bottoms. Bulls ran the show since mid-March and rallied nearly 3500 points before cracking the charge uphill last week.
Now, investors are in a tough spot. Does the trend break lead to more selling or is the weakness an opportunity to buy on the cheap compared to prices just 30 days ago? The answer lies in resistance at 14,500 on the upside and support at 13,300 on the downside.
What happens between the upper and lower guardrails is just technical noise. We would not be surprised to see the NASDAQ bounce between resistance and support for the next few weeks, benefiting range bound traders. Until the upper or lower boundaries are broken, investors might consider taking short-term profits as the NASDAQ approaches 14,500 and initiating short-term trades when the index closes in on 13,300.
Longer term, the NASDAQ would be positioned to continue moving higher with a close above upper resistance at 14,500. A close below 13,300 might mean a trip to the 200-day moving average of 12,096 and rising. Either way, the next move is likely to be consequential and one that could be profitable for investors that are on the right side of the trade.
For now, investors might be wise to hold their positions until the NASDAQ breaks out or breaks down. Preparation is key, stop loss orders might make sense for short term traders.
In what could be a sign that weakness might continue, SPDR S&P 500 ETF Trust (SPY) considerably outperformed Invesco QQQ Trust (QQQ) last week. As long-time readers know, we view the NASDAQ as the Mary of the market, where it goes, the other indexes are sure to go. We’ll be on the lookout for QQQ to outperform SPY as a potential precursor to bulls taking charge again.
Energy and Healthcare were clearly the biggest winners last week. Three oil and gas exchange-traded funds (ETFs) held spots 2, 3, and 4, behind the top gainer SPDR S&P Telecom ETF (XTL), up more than 4 percent. Positions 5 through 8 were occupied by healthcare ETFs.
With the NASDAQ in 50/50 land, we’d be hesitant to add any new sector/industry funds at this point. Hopefully, we’ll have more clarity next week.
We aren’t big fans of entering new positions when direction is in doubt. If the NASDAQ can establish hardened support in the week ahead, we’ll look to add new ideas with a better understanding of a clear, technical exit point.