President Joe Biden is known for a few go to phrases, “c’mon man” and “here’s the deal” uttered the most often. We’ll do our best Biden impression for “here’s the deal” with the current state of the stock market.
Wall Street slammed stock prices following news that Chinese real estate giant Evergrande couldn’t meet its current debt obligations, Congress failing to raise the debt ceiling, and the US Federal Reserve saying interest rates are likely headed higher.
The trifecta of troubling items sent the NASDAQ down from 15,400 to 14,500ish before rebounding to 15,100ish. The pivot higher is a technical plus for sure. Now, we have converging trendlines, which is good because the index should have solid footing once stocks pick a team, bear or bull.
As you can see on the chart below, the short-term trend is down. Meanwhile, the longer-term trend line is heading higher, step by step. The NASDAQ closed between the two lines on Monday. With the two trends on a collision course, the NASDAQ cannot stay between the two for much longer. It will pick a side, or a side will pick it.
If Wall Street pulls prices above the down swinging short-term line, then odds are the bull market is back in boom business. On the other hand, prices could be in for a sharp fall should sellers take control and move prices below the rising green line.
The bullish case likely brings the NASDAQ back to its 52-high in the 15,400 neighborhood. The bearish case could see the index paying a visit to its 200-day moving average at 14,000ish. Either way, prices are likely to make a significant move once a winner is declared. In our opinion, investors would be wise to wait for the declaration before jumping in or out.
Energy and Banks dominated last week’s top performing industries, holding the top five positions and seven of the top 10. The Energy and Bank ETFs are extended and ripe for pullbacks. Investors looking to enter either sector might wait for a pullback before getting in.
We’ll wait to add anything new until Wall Street takes a bullish or bearish tone.