Market Limbo, How Low Can It Go?

We wish we had some holiday market cheer to share with you. Unfortunately, it looks more like a lump of coal in our stockings instead.

Last week, we wrote:

“If the NASDAQ closes below the benchmark 50-day number, then the index is likely to retest last week’s closing low of 15,085. If the NASDAQ finishes under 15,000, it would likely be bad for prices with the possibility of heading to the 200-day moving average of 14,475.”

If the NASDAQ closes below the benchmark 50-day number… Check

… then the index is likely to retest last week’s closing low of 15,085… Check

… If the NASDAQ finishes under 15,000… Check

… it would likely be bad for prices with the possibility of heading to the 200-day moving average of 14,475…?

As much as we’d like to put some pretty wrapping paper on it and tie it together with a bullish bow on top, there is just no way to dress up this disappointing market. On the chart below, you will see the NASDAQ is stepping down the stairs as we call it. It’s marked by a lower high followed by a lower low, which is the definition of a downtrend.

Like the 60s hit The Limbo, the question now becomes How Low Can You Go?

Well, the most obvious target is the 200-day moving average mentioned above. There is a smidgen of support for the NASDAQ between Monday’s intraday low of 14,860 and 14,800. After that, there isn’t much in the way to the current 200-day benchmark average of 14,533.

This is cart ahead of the horse, but generally speaking, it’s considered bullish when indexes/stocks/ETFs… are trading above their 200-day averages. The B-side of the that 45 is bearish when trading below the benchmark 200-day number. We’ll deal with the bearish case if we get there, but let’s hope it’s a conversation we don’t have.

Minus some unexpected good news, the trend is lower. Hopefully, the Omicron Covid wave goes quickly so we can be in more of a party mood as we head into 2022.

SECTOR WATCH

Pharma, Biotech, and Healthcare were the most prominent on our sector/industry performance leaderboard. That’s not surprising considering the news around Omicron. However, with the market risk tilted towards more downside, there is no way we’d consider buying anything at the moment. Taking a position in an inverse fund is a possibility, but we aren’t ready to go all out bear, yet.

STOCK WATCH

We can’t take any new positions with our current market belief. One suggestion longer-term investors might consider is using rallies to sell underperforming holdings. Once the market knife stops falling, then using the cash to add market leaders at discounted prices. As the old Popeye cartoons would say when the hero saved Olive Oyl from drowning, out with the bad and in with the good.

May your time with your family be joyous, Merry Christmas and happy holidays.

Rich Meyers
Investing Trends