Wall Street is performing as we expected. In last week’s newsletter, we mentioned that the NASDAQ could head to its 50-day moving average if the July 4th shortened trading week got off to a good start. The index walked back from the edge and zoomed to the technical benchmark.
We also said that it would be difficult for investors to move beyond the 50-day mark because it coincided with resistance at about 11,600. Not surprisingly, the double-layered level of resistance attracted sellers to start the week.
The NASDAQ fell 2.26% on Monday.
The index is clearly in a better position than it was a month ago. The NASDAQ pivoted higher in the middle of June, retreated after some profit taking, and set a higher low before running to the 50-day moving average. Higher lows followed by higher highs in shorter-term cycles is considered bullish from our experience. We call this action ‘walking up the stairs’.
However, we have a couple of hurdles the NASDAQ needs to overcome to continue climbing the stairs.
First and foremost, the index needs to close to the better side of resistance at 11,600ish and the 50-day moving average. If the NASDAQ does this, then most other technical problems go away.
The NASDAQ cannot close below last week’s intraday low of 10,911.45. That would break the chain of walking up stairs and pull the mid-June low back into focus.
For now, we are in wait-and-see mode. We’ve suggested building cash positions by selling into strength since April. We’ll go bullish and look to deploy some of that cash if/when the NASDAQ crosses and closes above the 50-day line. Of course, we’ll do so with a shortish leash.
Biotech and Technology dominated our market performance leaderboard last week, which is to be expected when stocks are strong. But… much like the NASDAQ, biotech and tech will likely hit the pause button until the index can break on through to the other side of the 50-day average. If/when Wall Street crosses that line, Semiconductors and Online Retail might be the place to go as the two industries with the most ground to make up.
We stand ready to put a tech/biotech name in this spot as soon as we get the green light.