The NASDAQ continues to roll on higher. The index moved its way to a new cycle high after gaining more than XXXX points to start the week. At this point, the NASDAQ is so close to its 200-day moving average of 13,499 that the benchmark trendline will act like a magnet, pulling the index closer and closer.
However, the NASDAQ could take a step back or two before contacting the 200-day. Its Relative Strength Index (RSI) reading topped 70 to start the week. As a rule of thumb, a score of 70 or more is thought of as an overbought condition and likely to attract some profit taking. On the other end, a score of 30 or below is considered oversold and usually brings out buyers.
We have two competing forces in play. The natural draw to the 200-day mark versus an overbought reading. It is possible for the NASDAQ to overlook its RSI score and blast higher to its longer-term trendline. If that happens, it is highly likely that the index experiences a sizable selloff, maybe back to 12,000?
In our opinion, the better option for the longer-term is for the NASDAQ to cycle lower now, maybe to 12,750 and then rally to the 13,500ish. This would keep the pattern of higher lows followed by higher highs intact. If the trend of walking up the stairs gets broken by a more significant downturn, then the odds of a sustained turn lower shoot up.
Either way, we expect some weakness in the near-term, the only question is degree. If the NASDAQ goes red right away, then investors might consider buying the dip. If the NASDAQ charges straight to its 200-day average, then investors might consider raising some cash by selling short-term holdings and underperformers.
We should have the answer to which option Wall Street will choose before the end of the week.
Commodities rebounded last week with Energy, Oil & Gas, Metals and Mining taking the top four spots on our performance leaderboard. Green Energy separated Legacy Energy from financial sectors like insurance, large and regional banks to finish up the top 10.
Banks make sense with rising interest rates, but commodities are another story. It could be an indication that Wall Street believes the economy could be headed for a “soft landing” versus a “hard landing”. In other words, a mild recession versus something worse.
Data is mixed, so it’s tough to tell. Some reports are worse than expected, like the Empire State Manufacturing Index, and others are better than expected, like the Jobs Report. One note of caution though, jobs are a lagging indicator, meaning employers are slow to hire at the end of a recession and slow to fire at the start of a recession. Jobs tend to be one of the last data points to turn south or north.
Oil’s price, services, and manufacturing reports are leading indicators. So, keep an eye on those to get an idea of where the economy could be headed.
With the NASDAQ likely headed lower any day, we’ll wait and see if it’s a buy the dip selloff or possibly the beginning of a correction should the NASDAQ hit its 200-day mark in the days ahead.