Despite being red on Halloween, October closed with the first monthly gain since July. Will the rally continue to treat investors to sweet gains or just another bear market rally trick?
Let’s go to the tape.
Clearly, the August through mid-October downtrend is over. That doesn’t mean another leg lower isn’t coming, but the downhill momentum that carried stocks to a 2022 low is kaput. As you can see on the NASDAQ chart below, the index is currently trading above the treetop trendline of the late summer swoon.
In our book, that’s a trend break and can signal the start of a new direction.
So far, that is what’s happening. The NASDAQ stepped its way higher since the index bottomed out in October. We see a series of higher lows and higher highs. That’s the definition of an uptrend in another chapter of our book.
Here comes the inevitable but, the NASDAQ could have some trouble overhead. Once again, on the chart below, you will see late September petered out at 11,250. Sellers showed their teeth last week as the NASDAQ approached the 11,250, sending the NASDAQ lower again. Hardening that 11,250 target is the tech tilting index’s 50-day moving average.
In our chart-watching view, 11,250 is the key that could swing the door wide open for bulls, extending the current rally. The NASDAQ rallied aggressively the last time it passed from below to above the 50-day benchmark, jumping from 11,500 to more than 13,000 in about a month.
On the tricky side, if bulls cannot hold off sellers at 11,250, then stocks could reverse course, challenge, and possibly set fresh 52-week lows.
We cannot pick a side until the NASDAQ passes or fails the 11,250 test. Our gut and technical view favor the sweet treat of more upside. However, our experience says to wait for the market to make its move so that we don’t get tricked by false hope.
If/when the NASDAQ gets to the better side of 11,250, index investors might consider an exchange-traded fund (ETF) like Invesco QQQ Trust (QQQ), which tracks the daily performance of the NASDAQ 100. More aggressive types might think about leveraged funds like ProShares Ultra QQQ (QLD). Its objective is to return twice the NASDAQ 100’s return for a single day. For example, if the NASDAQ is up 1% for the day, then QLD should gain roughly 2%. Of course, if the NASDAQ 100 goes down 1%, QLD would lose close to 2%.
Not surprisingly, Technology stocks dominated our performance leaderboard in the last week. Half of the top 10 performing ETFs were tech related. Although, Marijuana owned the number one spot, gaining nearly 9%. We’d expect Technology to be close to the lead as long as the market runs higher.
Much like our view on QQQ, sectors might think about Tech ETFs when/if the NASDAQ crosses and closes above 11,250.
Close, real close to finally adding something to this space. But, we’ll be patient and wait for 11,250 to flash a green or red light. It should happen soon.