Paraphrasing Bob Seger…
It seems like yesterday, but it wasn’t long ago, COVID darkness with the markets headed low, no one knew the way, looked like a dark and lonely road.
Fast-forward to today: the NASDAQ set a 52-week high, with the DOW and S&P 500 hot on the junior index’s tail. Wall Street has a saying regarding new highs, they are usually followed by newer, higher highs.
Buyer enthusiasm was driven by Friday’s job numbers, a gain of 2.5 million J-O-B-S in the face of an anticipated loss. The absolutely unexpected result indicates the economy has a chance to rebound much quicker than many of the “experts” predict. A “V” shaped recovery appears to be what Wall Street sees as stocks yo-yo’ed up nearly as fast as they dropped.
As you might expect, all our market measuring sticks are bullish, indicating higher highs could be on the way. However, things might be a little too bullish with a potential lid on near-term upside. The big three indexes all have relative strength readings above 70. A score higher than 70 is generally considered an overbought condition. Overextended readings for an index can last for a few days, maybe a few weeks, but tend to forecast some profit taking, usually sooner than later.
As such, we see stocks dipping in the near-term. The NASDAQ possibly slipping to 9,500 ish; the S&P 500 dipping to 3100, maybe to its 200-day average of 3,009; the DOW to its 200-day mark of 26,311.
Investors with some quick, hefty profits in their pockets, might consider taking a little off the top of positions they don’t see as long-term. If history holds, and Wall Street reacts as expected to overbought conditions, you might be able to re-employ cash into some stocks at lower prices.
Oil and Gas knocked it out of the park last week, followed by regional and community banks, which we’ve highlighted for the past few weeks. Although oil and gas smoked it, exchange traded funds (ETF) like SP DR S&P Oil & Gas Equipment & Services ETF (XES) and SPDR S&P Oil & Gas Exploration & Production ETF (XOP) look overextended and could fall.
Normally, we’d highlight an ETF and stock of interest here, but we moved halfway down our sector watch leaderboard, and fund after fund seemed ripe for some profit taking, complimenting/confirming our overall market outlook.
We aren’t in the business of forcing it; so, we’ll take a pass and hope to find better value next week.
May all your longs go up and your shorts go down!