Stocks went into orbit and fell like a Chinese spy balloon last week. On Thursday, stocks rocketed higher on the belief the Federal Reserve is likely to halt rate hikes and eventually lower rates because the economy is supposed to fall into the Atlantic. Then came Friday’s jobs numbers that put holes in that theory.
We talked about this last week saying the Fed’s real objective is to cool off wages to attach anchors and sink inflation. Well, as long as the jobs numbers remain strong, it will be very difficult for the Central Banks to move off a restrictive interest rate policy towards something more neutral or accommodating for the financial markets.
Bulls should be encouraged by the NASDAQ’s gap up last Wednesday. That’s typically a confirmation of an uptrend. Of course, indexes don’t move in straight lines, so the last couple days of profit taking is not concerning yet. As long as the NASDAQ closes above January 30th’s final print of 11,393.81, we’ll view the Gap Up as confirmation that the current uptrend still has room to run. To the north, if/when the NASDAQ closes above 12,250, it would be yet another bullish confirmation, meaning prices are highly likely to increase.
That’s our technical view of the NASDAQ, definitely a bullish outlook. A few weeks ago, we switched from a hold on rallies to buy the dips; nothing has changed.
Index investors might consider adding to positions like Invesco QQQ Trust (QQQ) as the NASDAQ continues to slip or when it closes above 12,250. We’ll monitor market conditions to determine potential exit points to cut losses with an eye towards a close below 11,250.
A bit of a mixed bag of industries in our top 10 performers with a Technology and Banks tilt. ARK Next Generation Internet ETF (ARKW) led the way, growing more than 11 percent in the last week, the only double-digit gainer.
Twenty industry/sector exchange-traded funds (ETFs) increased by at least 5 percent in the last week of trading, including QQQ which substantially outperformed SPDR S&P 500 ETF Trust (SPY). QQQ outpacing SPY is yet another sign of bullishness.
Almost all of the ETFs that added more than 5 percent last week essentially mirror the NASDAQ. With such high correlation, the diversification of QQQ remains the best option, in our opinion. ETFMG Alternative Harvest ETF (MJ) is the lone exception, but the weed fund is not a buy just yet, according to our technical take. We’d turn bullish on MJ if/when it closes above its 50-day moving average of $4.74.
Rather than identify something new in this space, we feel it could turn out to be a wiser path for investors to identify portfolio holdings where adding more shares could lower their average price. This approach would help reach breakeven and potentially profitability sooner should our read on confirmation prove to be the correct call.
Thursday’s gap higher is usually a bullish sign. As long as the NASDAQ stays above the red line of technical support, there is a good chance for more continued confirmation with a close above the blue line of resistance.