Bulls and bears have drawn clear lines, making it easier for investors to have a strong sense of what’s next for the NASDAQ. If the index can close above 12,600, then bulls win and stocks probably close out 2020 on a high. Bears would likely wrestle control of the market’s direction with a close below 12,250.
The NASDAQ’s move higher to start the week pushed our short and medium-term momentum indicators out of a sideways slump and are now pointed upwards. Higher scores following the index’s 62-point gain moved our momentum model’s borderline buy signal firmly into bullish territory.
Meanwhile, the DOW and S&P trended lower all day after opening with a big pop to start the new trading week. The two senior indexes finished their day in the red with all three, the NASDAQ, S&P 500 and DOW closing near their day lows.
With our leadership, momentum and market type models treading on bullish ground, odds are Wall Street will likely challenge the NASDAQ’s top guardrail before the bottom. We put it at 60/40. Regardless which side of the box traders test first, it’s which side breaks that’s important, as mentioned up top. Until then, stocks could be range bound.
Short term investors/traders might consider adding positions near the bottom of the box, 12,250ish, and taking profits near the top of the box, 12,600ish. Longer term types should wait to see if bulls or bears cross their lines first before committing to one side of the tape or the other.
For the third week in a row, oil and gas stocks dominated the top of our performance leaderboard. But, they all took a beating Monday on worries of a possible new COVID variant and word that a fuel transport ship may have been attacked, hit the market. Charts show more could be taken off the top before rebounding.
Truthfully, none of the charts for last week’s best 15 performing ETFs are attractive in our view. All of them show risk to the downside. We don’t mind buying high as long as our view is they are going higher, but we will not buy high if our view is prices have better chance going down than up. That’s where we are right not with the week’s best performing sectors.
Without confidence in a sector, it’s hard to have confidence in a stock. Add in our expectation that stocks could experience range bound trading until Wall Street picks a winning side, it’s difficult to buy now if prices are as likely to be lower in the next few days as they are to be higher.
We looked at the top holdings for last week’s number one performer, SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Every holding we reviewed appears to have downside ahead. However, many of the charts are long term bullish with recent “golden cross” buy signals. That’s when the 50-day moving average crosses from below to above the 200-day average.
Investors looking to get into the oil and gas space might think about Concho Resources Inc. (CXO) around $56ish and/or Marathon Oil Corporation (MRO) at $6.30ish if both continue to show weakness in the days ahead.
CXO recently experienced the “golden cross” and MRO should achieve the technical milestone in the next couple of days. The potential entry points mentioned are close to their respective 50-week moving averages and could act as reversal points.