It was a not so Manic Monday, to paraphrase The Bangles’ 1986 hit song. The S&P 500 and Dow spent much of the afternoon in the plus column before stumbling at the bell. Meanwhile, the NASDAQ was red all day as the worst performing major index. Despite losing more than 100 points to start the week, the tech heavy index didn’t give up all of Friday’s huge gains and remains above the recent trend low.
As many of our long-time readers know, we consider the NASDAQ the Mary of the Markets. Like the nursery rhyme, where the NASDAQ goes, the other indexes are likely to follow.
From our perspective, the technical tug-of-war is between 12,000 on the upside and last week’s closing low of 11,364.24. The bottom side might have a little more wiggle room to May 12th’s intraday bottom of 11,108.76.
If the NASDAQ can lead the flock of bulls to a close above 12,000, it could be the start of the recovery process. On the other hand, if bears run wild and the index closes at a new low, the NASDAQ might act more like rats with the Pied Piper of Hamelin. (We could use one of those in Chicago where there are more rats than people, not including politicians.)
There might be cause for some hope/optimism that the bottom could be nearer than many might believe. Negative sentiment amongst the investment class is building. Here are a few examples of the financial stories in the MSN newsfeed that greets every new web tab.
- Ben Bernanke helped the U.S. recover after 2008 and now sees huge warning signs on inflation, stagflation and student debt (1)
- Stocks Keep Tanking As Growing Number Of Wall Street Experts Warn About Rising Recession Risks (2)
- Don’t be fooled by a bear-market rally in stocks ahead of 15% further downside in the S&P 500, Morgan Stanley warns (3)
- Goldman Sachs calculates a worst-case recession forecast as investors dump stocks and crypto (4)
- Are we in a bear market? Fears are mounting as stocks continue to fall (5)
That’s a belly full of negativity. It might seem counterintuitive that an increasingly bearish Wall Street might be a positive for stocks, but it’s not. You see, when bad news is expected, it tends to deaden the impact on stocks as it is “built into prices”.
That means, unexpected, good news will likely have an outsized influence on prices. You’ll know the end of ugly is near when the markets rise on terrible news that’s not as bad as predicted. Keep an eye out for this phenomenon as a point where the knife possibly stops falling.
For now, we are going to maintain our stance that investors consider selling underperforming assets into rallies to build cash positions. We’ll look to deploy king cash into market leaders when the not so bad is actually good.
Biotech, Energy, and Semiconductors set the pace in the last week with sizable gains. While we aren’t ready to make a move into any of the three, it could be a hint as to which sectors/industries might be the top performers when the bear hibernates.
We’ll continue to wait for signs of a bottom before adding any individual stocks.
1 – https://fortune.com/2022/05/16/ben-bernanke-federal-reserve-inflation-stagflation-student-debt/
2 – https://www.forbes.com/sites/sergeiklebnikov/2022/05/16/stocks-keep-tanking-as-growing-number-of-wall-street-experts-warn-about-rising-recession-risks/?sh=e943dd334bea
3 – https://markets.businessinsider.com/news/stocks/stock-market-outlook-bear-market-rally-mike-wilson-morgan-stanley-2022-5
4 – https://fortune.com/2022/05/16/goldman-sachs-recession-forecast-spx-stocks-crypto/
5 – https://www.usatoday.com/story/money/personalfinance/2022/05/16/bear-market-last-stocks/9764408002/?gnt-cfr=1