The Dead Cat Is Done Bouncing

It’s over!

The rally that knocked the stock market’s rebound out of a bear market is officially done. The NASDAQ crashed last Friday after Jerome Powell and company put investors on notice that interest rates are going higher until inflation is tamed.

The NASDAQ dropped nearly 500 points on Friday following Powell’s Jackson Hole comments. The index gapped down on Monday, opening at 12,021 to start the new week after finishing last week at 12,141.71. The NASDAQ didn’t change much from its Monday start, closing out the day at 12,017.67. Bulls did try to rally during the day, but any positive sentiment fell apart as the market closed.

The NASDAQ came to rest slightly above its 50-day moving average of 11,970. The benchmark average is a critical support level for the index. With sellers breaking the rising trendline of support last week, rallying mid-week, and then crashing to a new short cycle low, we get an image of the NASDAQ walking down stairs. That’s usually called a downtrend.

If the NASDAQ can’t hold its 50-day average, there is still plenty of legroom for prices to go lower. With a relative strength (RSI) reading of 41.48, the tech dominated index’s RSI can drop another 10 points before reaching oversold status. That would push the NASDAQ below the 50-day and in the neighborhood of 11,700.

The scary thing is that there isn’t a lot of technical support between 11,700 and the NASDAQ testing its 52-week low of 10,564.14. There could be a pitstop around 11k and then boom, we could be bottom fishing again and deep into bear market territory. On the upside, the NASDAQ could be limited to 12,300 in the near future.

NASDAQ

For now, investors might consider using any rallies to sell into strength and raise cash. The risk is to the downside now, meaning the NASDAQ currently presents a picture of more weakness. Of course, we’ll let you know if/when that changes to a picture of strength.

SECTOR WATCH

Marijuana, Clean Energy, Oil and Gas were the only sectors to make any headway in the last week, up more than 3%. A couple of tech sectors were close to breakeven, and the rest were underwater.  Crude Oil jumped more than 4% on Monday and is threatening triple-digits again.

Oil looks like the opposite of the NASDAQ. Light crude oil, WTI, broke a downtrend and is pressed against its 50-day moving average as well, but in a bullish way. If WTI closes above its 50-day mark of 97.47, it’s very likely headed to $100, maybe higher.

Ugh, we don’t want that mix again, skyrocketing gas prices at the pump and a bear market in our portfolios.

STOCK WATCH

We’ll wait a week to see if the NASDAQ can regain its footing. If not, we’ll probably be looking at add an oil stock in this spot.

The NASDAQ broke its ascending trendline on Monday, settling on its 50-day mark, which better hold. Otherwise, RSI has room to go lower with the next level of support at 11,700.

Rich Meyers
Investing Trends