We are on a ledge, but there is some hope that the NASDAQ could turn higher. The index appears to have regained its footing after sellers controlled most of last week’s action. Prices retreated and could not advance beyond the NASDAQ’s descending trendline connecting tops dating back to mid-April.
The cause for hope is that the index didn’t follow its recent pattern of setting new trend lows once bears took control, at least not yet. If the NASDAQ can rally from here, there is a chance mid-June might be the intermediate low and possibly the end of the bear market.
However, it won’t be an easy task to put sellers back in the box. The descending trendline we spoke of a bit earlier coincides with the NASDAQ’s 50-day moving average, which could have the effect of hardening resistance. To get through both will require determined and persistent buying.
On the plus side, if Wall Street can bust through a thick lid, then resistance becomes stiff support and can act as a springboard higher. A move beyond the 50-day would likely result in the NASDAQ pushing to the neighborhood of 12,000. Our experience says it will take a couple of tries to knock a hole in the 50-day moving average and pass through.
Danger lurks if the index closes below 10,600. It would mark a new closing low and could encourage more selling and bring 10,000 into focus, perhaps in a hurry; less than 10,000 would likely impact the psychology of investors in a negative way. Get below 10 grand, yikes, we don’t even want to think about it but there isn’t much support all the way to 9,000 and about 8,400 below that.
It remains our working thesis to take profits during rallies, especially as prices close in on resistance. In our opinion, there is currently more danger to the downside than reward to the upside.
It was a tough week for most sectors/industries as only nine sector/industry exchange-traded funds (ETFs) managed to be on the good side of zero. Businesses that are considered defensive during economic tough times were among the few to make gains, including utilities, consumer staples, and food, all things we cannot do without during a potential recession.
Even though these ETFs squeezed out minor gains during a down week, they would go negative like everything else if the bear market continues.
It’s not the right time to consider new positions in individual stocks.
As you can see, the NASDAQ could not get beyond the falling green trendline. Index will have to get past the trendline and the 50-day mark to have a chance for a long-lasting rally.
The step up in lows is a short-term positive.
Keep the bottom blue line in mind. If the index closes below it, it could get uglier.