Elon Musk’s SpaceX recently tried to launch its Starship rocket into space on Saturday, November 18, 2023. Unfortunately, a mishap early into the flight led to SpaceX aborting the launch and intentionally blowing up the rocket before it left the Earth’s atmosphere and entered outer space.
Perhaps, the world’s richest man might consider hiring Wall Street traders instead. Stocks have rocketed off late October’s launch pad and appear headed straight for the moon, maybe Mars or beyond. The NASDAQ has added about 1,750 points since bottoming out at 12,500ish in late October.
It’s essentially been a vertical ride higher with little interruption of mishaps, yet. That could be about to change. Much like Elon’s Starship, the NASDAQ’s ride could be on the verge of termination. The meteoric rise has the NASDAQ trading in overbought territory with a Relative Strength Index (RSI) score above 70.
As a rule of thumb, an RSI reading above 70 tends to attract selling and a measurement below 30 brings out buyers. As you’ll see on the chart below, investors took profits the last two times the NASDAQ topped 70. Considering the rapid pace of the recent rebound, it would not be too surprising to see the index give back up to half of its recent gains once the selling starts.
There are two logical support levels on the NASDAQ daily chart.
- The top of the gap up at 13,800
- And then the rising 50-day average of 13,424, likely to be closer to 13,500-13,700 by the time sellers could push the index that low.
Investors should welcome some selling as it would create an opportunity to get in at a better price, set a pivot low which would act as a potential stop loss/support zone, and begin the normal practice of higher cycle lows followed by higher highs.
We understand all the energy appears to be let’s see how high we can take stocks. However, like Starship, the more overbought the NASDAQ becomes, the more likely something snaps, and the ride ends in flames.
For now, index investors should show patience, wait for the inevitable correction, and look to add something like Invesco QQQ Trust (QQQ) as the index approaches the support levels outlined above.
It was a great week for sector/industry investors as 39 of the 50 sectors/industries we monitor outperformed the NASDAQ and S&P 500. Although, as strong as last week was, a crack did appear. SPDR S&P 500 ETF Trust (SPY) slightly outperformed QQQ, which adds to our case that the recent run higher might be close to its pinnacle and ready for profit taking.
Even more interesting, the rally was led by community banks, regional and large, holding spots 2, 3, and 7 on our leaderboard, respectively. Clearly, Wall Street is banking on the Federal Reserve lowering interest rates in 2024. We aren’t so sure that will happen.
If we’ve made the correct call and stocks retreat soon, we’d be more inclined to buy a tech exchange-traded fund (ETF) for the rebound. Maybe something like SPDR S&P Semiconductor ETF (XSD) or Global X Cloud Computing ETF (CLOU).
Nothing yet, but as soon as we get some profit taking and a pivot higher, most likely within a week to 10 days, we’ll absolutely have something here.