As our long-time readers know, we consider the NASDAQ the Mary of the Markets; where it goes the others tend to follow. Mary has been going backwards and really put it in reverse to start the week, down 2.66%.
Aside from direction, we are bullish when Mary leads the others from the front and not giving direction from the back. The NASDAQ was the worst performing index by a wide margin to start the new trading week. Last week, the S&P 500 was the leading index with the DOW and NASDAQ lagging.
Mary’s bullish legs have grown weary.
Is the much-anticipated correction here, time to panic? Not yet… but the friendly trend that’s lifted stocks since Election Day might be ready to crack.
Despite Monday’s major selloff, the NASDAQ remains within its upward trading channel that’s defined its range since early November 2020. However, if bears can push the index any lower, the current trend could come to an end. Fortunately, a technical safety net, the 50-day moving average, is just 210 points below.
If the NASDAQ crashes through the bottom guardrail, then this trend could be over if prices don’t snap back into the range quickly. Then the 50-day moving average comes into play. Moreover, if the trend busts, the S&P 500 and DOW won’t stay afloat for long.
Investors might consider adding an inverse DOW exchange-traded fund (ETF) like ProShares Short Dow30 (DOG) if the bottom rail is broken because the DOW and S&P 500 will eventually play catch up with Mary.
On the flip side, if the pattern of hitting the bottom of the guardrail is followed by a pop, then Invesco QQQ Trust (QQQ) could offer upside to the top guardrail in the next week or so.
Financial sectors hold the most spots on our performance leaderboard with regional banks, financial centers, and broker-dealers. In our view, most of last week’s biggest gainers are at/near the top of their near-term trading ranges.
Instead, number six on the charts, SPDR S&P Metals and Mining ETF (XME) is interesting on a couple of levels. It broke through daily and monthly resistance on Monday; and moved past monthly resistance that dates back to 2013. That’s a long time.
Short-term, XME could take a little off the top; longer-term, many are worried about inflation. (1) We’ve already emphasized oil and gasoline in previous newsletters. SPDR S&P Metals and Mining adds to our inflation hedge picks. Commodities tend to run in long cycles. This could be the beginning of a bullish phase for resources.
For now, we’ll hold off on adding any stock from XME’s holdings as we prefer a more diversified approach within the sector.
1 – https://www.barrons.com/articles/if-inflation-is-coming-these-stocks-will-benefit-the-most-51613997007