Maybe it wasn’t all coal in Wall Street’s stocking. The NASDAQ is definitely in a short-term downtrend. However, bears had a chance to break support at 10,250 but buyers came to the rescue as the index approached the last stop before 10,000, probably lower.
The story is quite plain this week. The NASDAQ must stay north of 10,250 otherwise it will likely head to 10,000. Bust below the psychological mark of 10k and we are back in the valley of 2020’s Covid crash. Our technical take is the same using daily or weekly (below) charts.
Upside is probably limited to resistance at the 50-day moving average of 10,929, maybe the 200-week average of 11,343 if buyers get their mojo back. For now, investors have to be cautious because the risk is to the downside with the potential to turn ugly quickly if the NASDAQ enters 2020 Covid territory.
With a heavy lid of technical resistance limiting headroom, investors might consider raising cash by selling underperformers into market rallies. The cash could then be reallocated to market leaders when the NASDAQ’s outlook becomes more bullish.
Although we don’t believe it’s going to happen in the week ahead, index investors and those who want to hedge against downside, might consider ProShares Short QQQ (PSQ), especially if the NASDAQ closes under 10,000. PSQ’s objective is to return the opposite of the NASDAQ 100 on a daily basis. If the NASDAQ 100 drops 1 percent, then PSQ would rise by roughly 1 percent. Of course, if the NASDAQ 100 moves higher, PSQ will lose money.
Energy, Oil and Gas continue to march higher with SPDR S&P Oil & Gas Equipment & Services ETF (XES), Energy Select Sector SPDR Fund (XLE), and SPDR S&P Oil & Gas Exploration & Production ETF (XOP) owning the top three spots on our performance leaderboard. Add in SPDR S&P Metals and Mining ETF (XME) and commodities dominated.
The charts for the three oil and gas ETFs all look like they plan on continuing higher. Index investors with the stomach for swing against the tide of the overall market might consider XOP. A bullish MACD Crossover with rising relative strength hints at upward momentum. Meanwhile, XOP hasn’t moved too far from its recent low of $130. On the upside, the last time the ETF had a similar set up, it moved higher by about $25 in about six weeks. On the downside, short-term traders might cut losses if XOP closes below $129.
While we like the upside to downside risk to reward ratio of SPDR S&P Oil & Gas Exploration & Production ETF (XOP), according to our technical opinion, we are not willing to isolate an individual stock. The diversification of an exchange-traded fund gives us less risk in times of turbulence.