Before we get to our market analysis, we’d like to wish you a Happy Thanksgiving. May it be a blessed day of family, fun, and food.
As for stocks, the market has meandered lower since bumping against technical resistance at 11,500. The dip isn’t concerning, yet, for a couple of reasons.
1- Volume is declining as the NASDAQ drops
2- The NASDAQ remains above its 50-day moving average
We’d be worried about the durability of the current upward trend if volume was increasing as the index dropped. With activity declining, it could be a sign that the number of sellers is dwindling, setting the stage of a nice rally when buyers return.
Trading north of the 50-day benchmark is a sign the technical backstop might have some staying power. Again, if buyers return, it will give bulls confidence that the 50-day average is clear technical support. As long as the NASDAQ stays to the better side of the key trendline, the uptrend should stay on course.
At the same time, the 50-day also serves as a warning light if the NASDAQ closes below it, which could attract more sellers.
For now, our focus is a little below the 50-day mark at 10,750 on the bottom and 11,500 on the top. If the NASDAQ stays in the box, we could be in for some boring, range bound trading. However, we don’t expect any sideways action to be around for long. The market will pick a side before long, and we’d say the odds are 60/40 the index breaks past the 11,500 ceiling and challenges the 200-day average of 12,139 and falling.
For now, index investors might stay in a holding pattern. If the NASDAQ closes below 10,750, we could be in for more turbulent times. On the other hand, if the index closes to the better side of 11,500, then an index exchange-traded fund (ETF) like Invesco QQQ Trust (QQQ) could benefit.
Interesting that defensive sectors took the front of the pack last week. Consumer Staples, Utilities, Insurance, Food and Beverage were among the best performing industries last week. That’s not what you expect to see if the market is on the verge of a rally.
We’d expect to see dynamic growth companies like Technology, Healthcare, Communications… at the forefront of bullish minds if Wall Street was positioning for a run. It’s also a touch worrisome to see SPDR S&P 500 ETF Trust (SPY) outdo QQQ. Good times are usually marked by the NASDAQ leading the way.
Sector/industry performance tells a cautious story. One where investors aren’t sure what’s next.
We hoped to add another idea here this week after finally putting Upwork Inc. (UPWK) on the board last week. However, the Sector View clouds the outlook of our Market View. The NASDAQ tells a story of support and a potential pop, while sector/industry performance hints at choppy waters.
With that in mind, we’ll be careful and wait a week to see if market technical and sector performance come into agreement.