Sometimes the news and the prevailing narrative don’t match. Stocks were rolling higher on the belief the Federal Reserve was positioned to halt interest rates hikes due to tamer inflation. There was even some belief the economy could slow enough for the Central Bank to reverse course and possibly lower rates.
Last Friday, The Producer Price Index (PPI) showed 0.7% growth for the month, the biggest increase in six months. Economists forecasted 0.4% after a decline of 0.2% in December. (1)
Clifford Bennett, chief economist at ACY Securities put it this way, “There was not a lot of major news, but in the back of every traders’ mind was the thought that this whole ‘high inflation/Fed hiking’ scenario, may not actually be over as soon as many hoped. The troubles may be far from over.” (2)
Worse than expected inflation numbers troubled Wall Street indeed as the NASDAQ lost ground on the PPI results. Fortunately, buyers hopped in as the index closed in on an important technical support level at 11,600. It’s important because that’s where the NASDAQ pivoted higher following a couple days of profit taking. Pivoting at a higher low confirmed the current uptrend.
If the NASDAQ closes below 11,600, it breaks the series of higher lows followed by higher highs (stepping up) and would put the current rally in jeopardy. As long as the index stays above support, the odds continue to favor higher prices. If support fails, then the 200-day moving average of 11,421 becomes the most likely destination below.
We’ve talked about the key number on the downside. Up top, 12,000 is the prize for bulls. Move above resistance and last Friday will be a blip on the NASDAQ’s chart as it would be continued confirmation of the ongoing trend higher.
Our strategy had been to buy on the dips, but we are going to put that on pause to start the week. Although we feel like investors will get back to buying and view last Friday’s inflation news as a hiccup, that could change drastically if Wall Street comes to the conclusion that “troubles may be far from over.”
A little bit of everything made the top 10 our industry/sector leaderboard. ARK Next Generation Internet ETF (ARKW) was by far number 1 on the list rising more than 6.31 percent for the week. ETFMG Alternative Harvest ETF (MJ) held second place with a gain of 2.83 percent and Invesco Dynamic Software ETF (PSJ) checked in at number 3, tacking on 2.07 percent.
Afterwards, Biotechs/Pharmaceuticals, Metals and Mining, Aerospace and Defense, Retailers and Telecom filled out the rest of the top 10. As you can see, a big cross section of the economy.
A lack of concentration around a theme or two can be a sign of indecision, which coincides with our technical outlook of a potential change in trading tone.
Let’s see how Wall Street behaves in the week ahead before jumping into a new sector/industry exchange-traded fund (ETF).
Since we are putting buy on the dip on pause, we’ll put adding new ideas in this spot on pause too, probably just for a week. We are fairly confident Wall Street will tell us quickly if the uptrend continues or if it is broken.
1 – https://www.cnbc.com/2023/02/16/producer-price-index-january-2023-.html
2 – https://www.seattletimes.com/business/asian-shares-mostly-higher-as-inflation-worries-dog-wall-st/