Before we get started, happy holidays to you. May the days ahead be filled with family, friends, fun, and great food.
We were waiting for the NASDAQ to pick a side, unfortunately it chose Bah-Humbug over Ho-Ho-Ho. There is a lesson to be learned from the recent breakdown, wait for the market to tell you what it is going to do instead of telling the market what it will do.
Sounds a little nutty but let me explain.
People act based on their beliefs. If you believe stocks are going to rise, you will act accordingly. Before last week’s selloff, bulls had a 50/50 chance of being on the right side of the tape once sideway trading ended.
Now we know that they were wrong. Those who bought on the belief Wall Street would rally out of consolidation aren’t happy today. They told the market what it would do, and it didn’t listen.
Conversely, those who waited for the NASDAQ to tell them what to do, knew what action to take once support at the bottom tapped out.
Many, myself included, learned this lesson the hard way, picking a side before the winner is announced and losing money. This misunderstanding is not limited to individual investors. While the markets were trading sideways since early November, many name brand investment houses told their clients stocks would rise into the end of 2022. Wrong!
It can be summed up succinctly with an axiom a veteran mentor shared, “It is better to be out of the market wishing you were in than in the market wishing you were out.” I’ve carried this advice with me for more than three decades. It’s a guiding light when markets are uncertain and reminds me to wait for the stocks to tell me what to do instead of me telling them what they will do.
Now that the consolidation phase is over, the NASDAQ tells us it is going down. The question is how low? The first level of support is between 10,300 and 10,250. That’s not all that far from Monday’s close of 10,546.03. It’s off to test the 52-week intraday low of 10,088, maybe as low as 10k, if the first technical safety net doesn’t hold.
A close below the psychological 10,000 mark could be a major negative, but we’ll fight that fight if/when that bell rings. For now, investors might be wise to raise cash by selling underperformers into rallies and reallocate the cash into leadership stocks when the NASDAQ tells us it’s time to get bullish.
SPDR S&P Oil & Gas Equipment & Services ETF (XES) was the only sector on our industry performance leaderboard to end the past week of trading above water, gaining a little more than 1 percent. SPDR S&P Oil & Gas Exploration & Production ETF (XOP) was next up, slightly below breakeven for the week. Energy Select Sector SPDR Fund (XLE) is the third oil & gas exchange-traded fund (ETF) in the top five.
While a clear trading theme is in view, if stocks continue to sink, they’ll likely take oil and gas down too.
No chance we can put anything in this spot until conditions turn bullish.
The NASDAQ fell out of its sideways trading box and appears to be headed to support below.
10k is a line we don’t want the index to break.