It looks like the NASDAQ could be headed for a cooling off period. The index’s chart appears to be rolling over for some potential profit taking. It’s not surprising considering the NASDAQ has been skirting along a borderline overbought reading for most of August.
The NASDAQ’s relative strength index (RSI) is at 66.33, bordering the minimum overbought threshold score of 70. As a rule of thumb, an RSI reading of 70 or more is considered overbought which is usually followed by some selling, and an RSI of 30 or lower is thought to be oversold and typically attracts buyers.
Wall Street tried to rally the NASDAQ beyond 12,750 before sellers took control of the day, losing a modest 13.10 points on the day. The loss was small, but it does have the look of a rally that might be getting tired. Typically, the NASDAQ closed on the plus side of the tape when surpassing previous, short-term cycle highs, but not Monday.
A little air coming out of the balloon is probably the next course of action for the NASDAQ. A trip back to support in the 12,250-12,000 range looks like the most logical level. We’d expect buyers to show up no later than 12kish provided the “buy the dip” trend remains intact. Once bulls re-enter the arena as the dominant force, we expect the NASDAQ to continue the path that appears to be headed for the 200-day average of 13,557.
Longer term, Wall Street is mixed on its outlook for the remainder of 2022. JP Morgan sees 10 reasons why stocks are attractive now. Meanwhile, Morgan Stanley feels we have not seen the Bear Market low yet. (1) Either way, it’s our opinion that the current uptrend remains intact if the NASDAQ doesn’t close below the 50-day average of 11,672 and rising.
Index investors might consider adding an index exchange-traded fund (ETF) like Invesco QQQ Trust (QQQ) if the NASDAQ closes above 12,750 with conviction or as it approaches 12,250-12,000 if a minor selloff occurs in the next few days.
Biotech and Technology soared last week as they occupied the first 10 spots on our industry/sector performance leaderboard. The top three each gained at least 11% in the last week with ALPS Medical Breakthroughs ETF (SBIO) jumping more than 17%.
Investors might want to focus on these sectors/industries when considering buy-the-dip candidates. They should continue to hold leadership positions when the indexes trade higher. They are also the pools individual stock buyers might fish in when searching for stocks to consider in the short-term.
Since we believe the NASDAQ appears positioned for a temporary pullback, we won’t look to add an individual stock today. If the markets slip a little as we think they might, investors might consider adding tech and biotech leaders as the NASDAQ approaches its initial level of support at 12,250.
1 – https://finance.yahoo.com/news/10-reasons-to-buy-stocks-right-now-according-to-jp-morgan-102743824.html