Getting Defensive

When a flag is flown upside-down, it’s a sign of distress, meaning something is wrong. The letter V is usually associated with victory, or in the case of the stock market, a bullish rebound. However, much like a flag hoisted upside-down, an upside-down V is a potential pattern of distress for chart watchers.

That’s where the NASDAQ is today. The index is squarely in the middle of a V pattern with the point facing up instead of down. There was some hope a couple of times during Monday’s trading session that bulls could rally the herd and push prices higher, possibly setting the stage for a pivot upwards. But nah, sellers had the edge, and the NASDAQ slid a modest 18.72 points.

If buyers carried on and lifted the tech-tilting index into the green for the day, it might have established a higher low than the previous low. That’s usually step one in a reversal, a higher low followed by a higher high. Visualize stock prices walking up stairs. It’s still possible for prices to find their way northward and put an end to the current downtrend.

Monday’s close was within the high-low range defining trading for the last four sessions. If the NASDAQ can rally and close beyond the 50-day mark of 13,728, then there is a strong chance the index takes on its 200-day average once again.

That’s the hopeful scenario.

While the NASDAQ could sputter and stop on the way up at key technical points like the 50 and 200-day benchmarks, the path down would likely have fewer obstacles to its recent March 14th intraday low of 12,555.35. The NASDAQ found some money at the day’s low of 13,222.03. If the index were print below Monday’s bottom, it could attract sellers and send the index on its way to completing an upside-down V pattern.

That’s the not hoped for scenario.

Right now, bulls are hanging on by their fingernails. The last time the NASDAQ dangled over the cliff’s edge with a flimsy hold, it managed to pull itself up and get back on solid footing. Hopefully, buyers find the strength to do it again. If so, index investors might consider Invesco QQQ Trust (QQQ), especially if the NASDAQ closes above its 50-day average.

If 13,200 can’t hold, then index investors might utilize an inverse index ETF like ProShares Short QQQ (PSQ). The ETF’s objective is to return the opposite of the NASDAQ 100 index on a daily basis. For example, if the NASDAQ 100 drops 1%, then PSQ should rise about 1%.

SECTOR WATCH

As has been the case of late, Metals, Oil and Gas were the top performers last week as inflation continues to be a fundamental market driver. Aerospace and Defense made an appearance in the top four, which is not surprising considering the growing chorus of demands for the US to get involved in Ukraine.

SPDR S&P Aerospace & Defense ETF (XAR) recently experienced a golden cross when its 50-day average moved from below to above the 200-day average. The last time XAR golden crossed was in November 2020 and the ETF subsequently rallied from the low $90s to more than $135.

STOCK WATCH

Although it looks like Aerospace & Defense is poised to do well if history rhymes as Twain said, however, we prefer the added layer of diversified holdings in an ETF versus an individual stock with the overall market teetering and leaning towards going lower.

Rich Meyers
Investing Trends