It’s a good thing stocks rebounded to start October trading; otherwise, it might have been catastrophic.
The NASDAQ finished up September with a 52-week closing low but managed to stay within a whisker of its 52-week intraday low of 10,565.14. Friday bottomed at 10,572.33. There is a little wiggle room to this, but if the NASDAQ closes under the yearly low, it would be a major technical break with stocks probably moving aggressively lower.
Fortunately, there is a chance we avoid the doomsday scenario if the NASDAQ remains on the better side of what is now a double bottom. Going forward, the tech-dominant index should find solid support at the freshly formed double bottom; however, consider it a dam breaking if bears poke a hole and let sellers rush through and past 10,565.
In the near-term, the rebound could continue for the next few days or a little longer. Short-term momentum has shifted higher and the NASDAQ’s Relative Strength Index (RSI) is pointing up after reaching an oversold reading.
Looking at our chart analysis below, the trendlines connecting descending tops and bottoms hint at a few obvious potential destinations. First, resistance appears at roughly 11,000, which is the mid-point of the descending trading channel. The NASDAQ could tack on another 500 points if Wall Street puts the index on the plus side of 11k.
In our opinion, unless something fundamentally changes, like an end to the war in Ukraine or the Federal Reserve changing course and halting interest rate hikes (or maybe cuts), 11,500 is the max upside for this rebound, should it have legs.
Selling into strength has been the right strategy for most of 2022 and likely the best course of action if the NASDAQ stays green within its trading channel. Investors might consider building cash positions by selling underperformers and reallocating cash into leadership companies after the NASDAQ pivots higher with confirmation.
Oil and Gas had a strong recovery in the last week, propelled by word that OPEC might cut production by as much as 1 million barrels per day to shore up oil’s price. While Energy stocks could stabilize, Tech and Healthcare would likely be the prime beneficiaries of any short-term strength.
Aggressive, swing traders might consider a tech-based exchange-traded fund (ETF) while the NASDAQ remains to the plus side of the 52-week low. Global X Cloud Computing ETF (CLOU), iShares North American Tech-Multimedia Networking ETF (IGN), and SPDR S&P Software & Services ETF (XSW) were the top-performing ETFs in the last week and could continue to head the pack if the NASDAQ continues higher.
Of course, swing trading is highly risky and could lose money. It’s only appropriate for discretionary funds that the most aggressive investors can afford to lose.
We cannot consider anything for this space until the NASDAQ confirms the selloff has most likely reached bottom.