Market conditions are straightforward this week. We could add fluff for the sake of running up word counts but will just stick to the facts as we see them.
If stocks can’t find their way north after seven consecutive down weeks, then something in the economy could be badly broken. Although Wall Street has room to take prices higher, don’t be taken by a sudden burst in buying. Bear markets are known for aggressive, volatile pops higher.
The NASDAQ has headroom to about 12,000, maybe 12,250 on the upside before running into technical resistance. It’s what happens then that investors need to watch carefully. The trend has been to sell into rallies and then watch the market set new intermediate lows.
However, if the NASDAQ can rally from here, one of the trend’s markers will be missing this time around, a new low. The index managed to hug its recent closing low and not go discernibly lower at the end of recent trading sessions. That might be the first real sign that this wave of selling could be ending.
Another plus for buyers is that the NASDAQ isn’t all that far from its 200-week moving average of 10,739.50. In our view, that is literally the red line we don’t want to cross. If the NASDAQ closes below 10,500, we could be in for a dot.com bust replay. We don’t want that.
For now, investors might be wise to review their list of potential buy candidates and not sell into the rally this time. We are close enough to essential support that Wall Street and the Fed are going to put up a big fight before giving up the 200-week moving average. If they lose the fight, it’s because something in the economy is badly broken. And then, it’s look out below.
If stocks do manage to break free of their downward way, investors will want to pay attention to the sectors that lead the way out. Those are the sectors/industries that are likely to be the best performers if the market recovers. Technology and pharma/biotech were unquestionably the leaders in the last week, tech owned six of the top 10 spots, pharma/biotech three, and clean energy latching onto the top spot.
We aren’t ready to put our hooks into any of these sectors just yet, but it is where we will be fishing once the NASDAQ signals a pivot higher.
Again, we would suggest reviewing your list of potential buy candidates with an emphasis on Technology, Pharma, and Biotechs.