Wall Street tried to rally early to start the week, but buyers gave way to sellers. Investors used morning strength to sell and move money to the sidelines. It was the fourth down day in a row.
With the lack of any stick-to-it-ness for any upward enthusiasm, you would have to be crazy to jump into the market right now. The NASDAQ is just a few points away from setting a 52-week low.
The test is near and coming.
However, before we get a pass or fail grade, stocks could get a lift in the short-term as the NASDAQ’s relative strength index (RSI) is under 30. As we’ve pointed out before, a reading of 30 or below is considered “oversold” while 70 and higher is “overbought”.
Oversold conditions tend to attract day/swing traders looking for a bounce up. As tempting as it might be to trade and “pick the bottom”, investors would be wise to be overly cautious right now. The right move might be to repeat Monday’s theme, sell underperformers into strength, build cash, and live to fight another day.
Right now, downside risk heavily, HEAVILY, outweighs upside potential, in our opinion. Maybe, the NASDAQ can rebound to 11,500. Ah, but if the index digs deeper into bear market territory and makes a new low, 10,000 could come into focus fast.
Ten-k is a psychological dam, if it gives way, it’s probably going to get uglier, maybe a lot uglier. It would put the NASDAQ on the precipice of heading into 2020’s Covid19 valley. If you follow the current descending trendline, if 10,000 goes, it could be a quick trip to 9000.
Now is not the time to be brave. As the saying goes, “never try to catch a falling knife.” The smarter thing to do is wait for Wall Street to pivot higher and start walking up stairs; it’s the saner thing to do under current market conditions.
There was absolutely nowhere to hide last week. Consumer Staples were the top performer, losing just 2.75% last week. Oil and Gas was at the other end of the list, shaving off more than 14%. No sector/industry offers shelter from the storm right now.
There is no way we’d consider any individual stock at the moment. About the only thing we’d consider are low-priced stocks, trading close to $1, way off their 52-week highs and viewing them as stock options without an expiration date. A few hundred bucks to buy 1000 shares, stick it in a shoebox and forget about it until the market returns to health.
Of course, it’s only appropriate for investors who can afford to lose all of their investment with the idea of hopefully turning a few hundred into a few thousand during the next 24 months or more.