Stocks survived a crucial test of support last week as the NASDAQ stayed north of 10,250. We thought a relief rally could be in the cards and here we are. However, upside could meet a heavy lid once the index reaches its 50-day moving average of 10,784. Right above the 50-day benchmark sits another level of resistance close to 11,000.
Stocks could get a boost or blast on Thursday when the Bureau of Labor Statistics releases the Consumer Price Index which measures inflation at the retail level. If costs at the register come in higher than expected, especially in the services category, then the current rally could prove to be short.
On the other hand, if prices don’t rise as much as forecasted, once again with a focus on services, that would give Wall Street hope that the Federal Reserve might slow or even pause rate hikes. Just note, the last time traders got hyped on an inflation report, stocks rocked, and Fed Presidents scolded the street for misreading the reports. Of course, the message was received, and indexes tanked.
The NASDAQ’s chart is hinting at a potential run with a technical buy signal. The index’s recent strength created a bullish MACD Crossover (see the chart below). The last time we saw the same signal triggered, the NASDAQ rallied to a bit beyond resistance and then traded sideways for two months. The current setup resembles the previous one.
Right now, it’s hard to have confidence in the durability of any rally, at least until we get the first series of higher highs and higher lows i.e., walking up stairs. It is also a bit unsettling that stocks got a big head start into the green on Monday, only to slowly drift lower with the Dow and S&P 500 going negative at the close.
However, we are making a slight shift in our sentiment. Until now, we suggested selling into rallies and raising cash. Since the NASDAQ survived the test at 10,250 and is showing signs of technical life, we are flipping from selling into rallies to holding positions, perhaps even swing trading some of your favorite holdings. Be warned, short-term trading is dangerous and only appropriate for money you can afford to lose.
An interesting mix of sectors delivered top performances last week with mobile payments/online retail and communications/entertainment/media dotting the top of our leaderboard. While they are different in name, the common thread of wireless devices weaves them together. It could be a good sign for things to come for companies in wireless devices industries, like Apple Inc. (AAPL).
Unfortunately, all the leading industry charts look a little extended in our view and could be in line for some short-term profit taking. We’ll hold off adding any sector/industry exchange-traded fund (ETF) to this space until a new uptrend is confirmed.
Ditto here, no individual stocks until the coastal, chart fog shows signs of clearing.