Last week we talked about Wall Street always leaving markers, points where stocks can rise or fall. Well, the NASDAQ bypassed the upper marker and immediately headed for its 50-day average to finish the week. Bulls took charge Monday to move past the technical benchmark.
The NASDAQ busted past the descending trendline that defined September’s trading. At the same time, the index experienced a bullish buy signal known as a MACD crossover. Both are positives and should mean stocks are likely to trend higher in the intermediate term. However, as you’ll see on the chart below, the burst higher after a downtrend tends to be followed by some quick profit taking and possibly some sideways trading before the next leg up.
Third quarter earnings’ report cards and future guidance will likely be the driving force behind the market’s strength or weakness as we move through October, traditionally a rough month for stocks. Wall Street analysts will have their eyes and ears focused on what executives have to say about inflation and its impact on bottom lines.
Through Friday, just 21 companies in the S&P 500 released their earnings reports with 15 topping the Street’s expectations. Thirteen of the already reported were in consumer sectors with eight faring better than expected. Meanwhile, five of five tech companies reported bottom line profits ahead of forecasts. If the trend continues, it should be good for stocks.
Of course, we’ll keep tabs on earnings and update you as the quarter progresses. Soon, S&P should provide data on forward guidance, which is what we are most interested in seeing. What’s done is done, investors make their moves on what they believe is to come.
For now, we are slightly bullish with the expectation that stocks are likely to pull back as Wall Street clips some profits in the wake of a fast reversal. However, this time buying the dip could prove to be the right strategy once again.
Tech exchange-traded funds (ETFs) jumped to the front of the line last week with mobile payments topping our sector scoreboard. Technology inhabited eight of the top 10 slots with Invesco Dynamic Software ETF (PSJ) as probably our favorite of the bunch. Although, none of the tech charts were standouts, in our opinion. Each had some weakness, but PSJ recovered the least from the recent downdraft, meaning it has the most headroom and possibly the least downside of the 10.
Sector investors looking for exposure to software stocks might consider Dynamic Software ETF (PSJ).
Activision Blizzard, Inc. (ATVI) is our favorite chart within PSJ’s top holdings. Shares of the Electronic Gaming & Multimedia company have headed lower since the middle of June, falling from $100 to $72ish. The video game maker is showing signs of a possible recovery and could be building momentum to go the other way. If ATVI can get to the better side of $80, it’s likely to head for its 200-day average price of $89.70.
On the downside, if Activision Blizzard falls below $72, then short-term investors might consider cutting losses.