Has the rebound started or was Monday’s rally a head fake before the next leg lower? The NASDAQ started the week gaining more than 1.5 percent following a decline where the index lost close to 1000 points in August.
The turn north isn’t surprising considering the NASDAQ was closing in on a Relative Strength Index (RSI) oversold reading of 30. It’s not uncommon for buyers to show up when an index/stock/ETF… prints a score of 30 or below and sellers to take charge when the technical measuring stick hits 70 or more.
There are a few yellow flags that suggest the current upturn might not have durable legs. First, Monday’s volume was light, the second lowest number of shares traded in 2023. The old saying is volume precedes price, not the other way around. Secondly, the NASDAQ has resistance where the 50-day moving average sits. That’s two-ply technical trouble, which could make it hard for bulls to push the index much higher than 13,800ish.
Longer term, the NASDAQ could be setting up the much feared and hyped Head and Shoulders pattern. As you’ll see on the chart below, a potential left shoulder emerged when the NASDAQ peaked at 13,900ish, sold off, and then rallied to roughly 14,500. The mid-July high could turn into the head, but only if the index turns south before topping 14,500 and closes below the “neckline” at roughly 13,250.
If a head and shoulders emerges and breaks, then the NASDAQ might take a trip to its 200-day mark, which stands at 12,159.77 and rising.
Now, that’s the bad side of things, off to the positive case…
Bulls will be looking for the NASDAQ to rally, experience profit taking, pivot higher, and then rally past the point of profit taking. For example, the current move heads to the 50-day mark of 13,806, sells off to 13,500, which is higher than last week’s closing low of 13,335.87, and then closes above 13,850ish. That is the higher high followed by a higher high, stepping up pattern that usually marks a pivot higher.
For now, investors might consider holding their position until the current cycle runs its course. We should have a good sense of which scenario might play out after Labor Day.
SPDR S&P 500 ETF Trust (SPY) outperformed Invesco QQQ Trust (QQQ) in what was a bad week for stockholders. From our point of view, it’s most bullish for investors when the NASDAQ leads the way. Stocks could experience weakness or flatten out if SPY continues to lead the way.
Only ETFMG Alternative Harvest ETF (MJ) and SPDR S&P Oil & Gas Exploration & Production ETF (XOP) managed to post tiny gains in the last week, up 0.33 percent and 0.08 percent respectively. Much like our Market Watch opinion, index investors might sit on their current holding until we get bullish or bearish confirmation.
There is no way we can hop on something new under current conditions. Hopefully we get the step up scenario, which could lead to some nice upside potential.