Imagine the movie preview guy’s voiceover, “Everything is on the line in the life of the bull market.” Like the voiceover guy’s voice, the sentiment of everything is on the line might be a little dramatic; however, the NASDAQ is on a line of technical support.
As we wrote about in last week’s shampoo market newsletter, the NASDAQ has retreated from an overbought Relative Strength Index (RSI) reading that topped 70. Profit takers moved to the front of the line and pushed the index down to the support at 14,000, which is well above the ascending trendline connecting the current trend low, pivot points.
The low pivot point trendline is where the dramatic stuff would come into play. That means the NASDAQ has some potential downside left if the index cannot hold onto 14,000. A bearish MACD cross-under and light volume on a green Monday could mean buyers might move to the sidelines if sellers show up again. As the saying goes, “volume usually proceeds price” and Monday’s volume doesn’t give us confidence that profit taking is over.
From here, the next step does matter. A move higher should harden support at 14,000 and could give the NASDAQ the juice it needs to make another cycle high, confirming the bull market. Another step lower doesn’t break the bull story but means the NASDAQ slips to the next level of support at 13,750. In our opinion, it’s 50/50 which side Wall Street picks for the rest of the week.
Nonetheless, last week we felt a dip was an opportunity to buy. Things are going as expected in the shampoo market. We got the wash with the NASDAQ making a new cycle high. We are in the rinse of profit taking and next up should be repeat; if we’ve made the correct call. In our technical opinion, until the NASDAQ breaks the lower trendline, there is no reason to think differently.
Index investors might think about adding Invesco QQQ Trust (QQQ) and maybe adding some more if the index legs down to 13,750ish.
With the NASDAQ taking a breather, interest rate-sensitive industries and sectors moved to the top of our leaderboard, predominantly bank exchange-traded funds (ETFs) with a few energy funds mixed in.
Since buying the dip is our market thesis, AI Powered Equity ETF (AIEQ) might make sense, especially if another round of profit taking knocks the ETF back a bit. AIEQ broke a downtrend on its weekly chart and started a new uptrend. It butted up against resistance and the 200-week moving average of $32.72. So, a pullback would not be surprising, maybe to its 50-week mark of $30.25. A close below $29.50, and we’d probably cut losses.
The Mosaic Company (MOS) is AIEQ’s second largest holding and the chart we like the most. The agricultural company might have bottomed out, or at least put in a floor of support at its 200-week moving average of $33.76 and rising. If MOS can close above $40, it could be a clean shot to the 50-week benchmark of $45.24 and falling. We’d close out a MOS trade if the stock closed below its 200-week line.