Wash, Rinse, Repeat

The fall from overbought is well underway for the NASDAQ and the other main indexes. To be honest, we were a bit concerned that Wall Street might extend the rally a bit longer but, alas, profit taking did commence and down we go.

The red action put an end to the uptrend and the question becomes is this a buy the dip opportunity or the beginning of an extended selloff. Or maybe… is it a little bit of both? Option a little bit of both is where we’ll plant our flag for now. Here is why.

Along with its expected dip, the NASDAQ experienced a technical sell signal known as a bearish MACD crossunder. The NASDAQ experienced a similar combination of a technical one-two in early February. It wasn’t a nasty selloff, just a slow, steady trip lower before rebounding and ultimately raced higher. The downturn lasted about six weeks.

We are about a week/week and a half into this version of the trend break from and overbought reading combined with a bearish MACD crossunder. The most obvious targets are support at 13,000 and then 12,750, which coincides with the rising 50-day moving averages. It might take another week or two to finalize, which lines up with the start of the second quarter earnings season.

If the current path mirrors February’s, then we’d expect the NASDAQ to flatten out as its Relative Strength Index (RSI) is close to the midpoint reading of 50 and slowly drift lower. Second quarter earnings and guidance will dictate whether the NASDAQ and stocks rebound like they did in February or move into an extended selloff.

For now, the current cycle looks more like a hold than a sell or buy, in our opinion.


SPDR S&P 500 ETF Trust (SPY) slightly outperformed Invesco QQQ Trust (QQQ) last week, which can be an indication of further weakness or a tepid rebound. As you know, we believe bullish moves are more robust and durable when the NASDAQ leads the way.

Overall, only SPDR S&P Homebuilders ETF (XHB) squeezed out a gain in the last week of trading. Otherwise, every other sector/industry exchange-traded fund (ETF) was a shade of red. Banking was at the bottom of the leaderboard holding the bottom three spots.

With sideways with a potential downward tilt, sector/industry investors might consider waiting for a pivot higher and confirmation of a new uptrend before adding new positions.


We don’t feel a weak environment is the best time to add new positions. Although, as we mentioned in our market analysis, we do expect this down cycle to be shallow and likely short. Investors might think about adding to market leaders in their portfolios as they approach support levels.

Rich Meyers