We called it last week, the NASDAQ completed the 1-2-3 pattern and would head north to challenge its 52-week high. That’s where we are now with maybe a little upside left to the target zone. Then, as we noted last week too, that’s when things get interesting for market watchers.
It will be the index’s third crack at getting past 14,200ish with conviction. Wall Street lost its oomph in the first pair of tries. Breaking a double-top, as it’s called in technical analysis lingo, is usually a reliable buy signal, which can be followed by aggressive moves higher.
On the other hand, failing to get on through to the other side for a third time will likely be viewed as a major negative. It’s way too early to tell, but our educated guess is stocks might go into correction mode (a drop of 10%-19%) if Wall Street fails in the neighborhood of 14,200 again.
The S&P 500 and the DOW were a little ahead of the NASDAQ in the process. The S&P nudged higher, and the DOW took a little off the top to start the week as they bordered their 52-week highs. The DOW’s actions is a touch concerning but not a deal killer. As our long-time readers know, the NASDAQ is our barometer. If the index smashes through its high, the DOW and S&P 500 will likely follow.
Investors are in a tough spot as a decision point of consequence looms. We went long the market last week at the end of the 1-2-3 with Invesco QQQ Trust (QQQ). If the NASDAQ closes above 14,250-14,300, then we’d strongly consider adding to QQQ. On the other hand, failing at the top and closing below 14,000 might be a good spot to close out the QQQ trade.
As one might expect, technology and medical/pharma did well with the NASDAQ charging higher as the top performing index of the big three. With a decision point coming, potentially swinging the market 10% one way or the other, investors might be wise to take a wait and see what happens approach before committing new money. If the NASDAQ does break out past 14,250-14,300, then tech stocks should be amongst the top performers.
Again, if the NASDAQ manages to bust the double top, then investors might consider adding some of their favorite tech stocks. Taking profits in short-term holdings and building your cash position might be the correct call should prices falter at this level for a third time.
Either way, an opportunity to ride a significant wave could be a few days away. Be it bullish or bearish, Wall Street should tell us which side of the tape to be on as stocks might be on their way to double digit moves.