We were expecting a rally last week and we got a rally.
This is how we framed it in our last newsletter.
“There isn’t a lot of technical resistance at 11K, other than the psychology of an even number. As a result, it won’t take much enthusiasm from bulls to get past 11,000. From there, it could be the express train to stiffer resistance at 12,000 to the 50-day moving average of 12,086.86 and falling.”
As expected, the NASDAQ did not pause at 11,000, making easy work of minor technical resistance. However, the index stopped short of the 50-day moving average, which currently stands at 11,955.52 and continues to slip lower.
With the NASDAQ losing more than 100 points to start the week, does it mean the Bear Market rally is over? Based on recent swings higher in the longer down cycle, most of the gains in this move could be in hand.
If you look back in the chart below, you’ll see quick runs higher, a sort of flattening out, a little push higher, and then rolling over into a new wave of selling. As a result, we would not be surprised to see the NASDAQ flirt with the 50-day moving average this week before attracting profit taking.
What happens after the NASDAQ takes the next step lower will determine if the Bear Market has run its course or if the indexes have not found their bottoms yet. If the index holds on and doesn’t set a new trend low, then a foundation to move higher would be in place. On the other hand, if the NASDAQ were to close below 10,500, we could see the tech index below five-figures for the first time since the middle of 2020 as the result of the COVID crash.
For now, we’ll stick to the plan we laid out last week, “investors might think about raising cash if/when/as the NASDAQ approaches 12,000.” However, be ready to re-deploy the cash quickly if the markets pivot higher without setting a new low.
Technology and Biotechnology led the way last week, as we expected. Everything except Energy, Metals, and Mining were in the plus column. We expect the relationship between Energy and Biotech/Tech to remain at odds. If the market continues to push higher, then Wall Street should cycle through the sectors/industries that got hammered during the fall while Energy/Metals take a hit. Of course, the flip side to that is true if bears return with vigor.
It’s still too soon to jump into any individual stocks as long-term investors. The current market environment should be ripe for swing/day traders using the sector relationship outlined above. If you believe stocks are headed lower, then Metals/Energy should rebound. If you believe the indexes have more upside, then anything but Metals/Energy should do well with an added emphasis on Technology.
We aren’t ready to commit to one side or the other until the market confirms which is the right side.