Every parent that’s road tripped with their kids is familiar with “Are we there yet?” For the past few weeks, we’ve travelled the path to a potential head and shoulders pattern for the NASDAQ. The answer to the questions is, yes, we are there.
Last week’s aggressive selling sent the NASDAQ sliding right to the technical, reversal pattern’s neckline. The index is now traveling on treacherous footing. Road trips though rugged mountains are probably the best visual for the road Wall Street is currently traveling.
Perhaps, you’ve driven on side streets through the mountains with steep, 100s of feet drop-offs that are within a foot to your right. Rocks, kicking off the tires from the car in front of you, are tumbling over the cliff’s edge and bounding deep into the ravine. Visions from movies where cars go over the edge, flipping uncontrollably and landing in a thudding ball of fire unfortunately come to mind.
Well, the rocks are cliff diving, but the car is still on the road, for now.
Monday’s tepid attempt for a rally has the NASDAQ bumping along the guardrail preventing it from falling into a technical ditch, for now. If the index trades below Monday’s low of 13,132 or closes below 13,200, close your eyes, buckle up and hold on tight. Stocks have gone over the neckline’s edge and might not stop tumbling until the NASDAQ’s 200-day moving average of 12,480 and rising.
To the upside, 13,400ish could prove to be resistance. That’s Wednesday’s closing zip code before Thursday morning’s opening gap lower. Falling markets with gaps lower can be seen as confirmation stocks are headed lower.
For now, investors need to keep a close eye on bearish triggers at Monday’s low of 13,132 or closes below 13,200. Should either come into play, an inverse index fund like ProShares Short QQQ (PSQ) could soften the cliff dive landing. The exchange-traded fund’s (ETF) objective is a return that is -1x the return of its underlying benchmark (NASDAQ 100) for a single day. If the NASDAQ 100 drops 1 percent, then PSQ should gain roughly one percent. Of course, the opposite is true if the NASDAQ 100 rises, then PSQ will likely fall in price.
Nothing traded above water last week and only SPDR S&P Insurance ETF (KIE) was down less than 1 percent on our sector/industry performance leaderboard. While both were in the red, SPDR S&P 500 ETF Trust (SPY) noticeably outperformed Invesco QQQ Trust (QQQ), which means stocks could continue to be weak.
With the market’s tires riding the cliff’s edge, investors need to be 1000 percent cautious about entering any new sector/industry ETFs. Going over the edge would likely pull most, if not all, sectors down.
There is zero chance of us adding a position here under current conditions.