That didn’t take long. Wall Street put down the Reddit GameStop raiders and stocks shot higher. It’s not a coincidence, it’s an unmistakable message; if you mess with the bull, you get the horns. Amongst friends, I use more colorful language taken straight from the movie Kiss of Death.
Wall Street celebrated its win in the fashion of another Nicolas Cage movie, Gone in 60 Seconds. Like car thieves, the street went from zero, more like reverse, to 100 mph in the other direction from one day to the next. The NASDAQ fell from being overbought with relative a strength rating above 70, to the middle of the road, back to the edges of overbought in 10 days. It’s unusual.
The last four times the NASDAQ topped a relative strength rating of 70, some selling followed. The daily reading is 69.93 as of Monday’s close. In the recent past, the height of the breach directly related to the ensuing depth of the fall. The higher and longer the RSI reading stayed above 70, the more painful the selling.
As a result of the U-turn for stock prices, we go from cautious to cautious but for different reasons. Last week, the market was in danger of an accelerating downfall. This week, prices yo-yoed higher so fast that some inevitable profit taking is highly likely.
Tuesday will likely be the tone setter for the rest of the week. The NASDAQ traded in a tight range on Monday, from 13,894.14 to 13,987.64, essentially the day’s high. Normally, closing on/near the high is a good sign for the start of the next day. It won’t be surprising to see momentum continue at the opening bell.
Wild swings from week to week or even day to day are the hardest markets to read and can make the most seasoned pros look foolish in the short-term. Just think about the events surrounding GME. A week or so ago the GameStop backers looked like geniuses. Now, many are considered fools. It all depends on the width of the view.
For now, the wide lens view is to buy the dip. Investors should be on the ready for prices to slip thanks to overbought conditions. If/when there is red, be prepared to put in some green.
Repeat winner, ETFMG Alternative Harvest ETF (MJ) was the leading performer on our leaderboard last week, up more than 20%. Energy and technology made up the majority of the others on our top 10.
SPDR S&P Oil & Gas Equipment & Services ETF (XES) and/or Energy Select Sector SPDR Fund (XLE) are on the verge of triggering technical buy signals. Both are banging their heads on near-term resistance and experienced bullish moving average crossovers. Their short-term prices moved from below to above intermediate prices. Previously, XLE and XES both moved higher in the immediate aftermath of similar conditions.
Two companies in the XES portfolio catch our attention based on recent price activity, Transocean Ltd. (RIG) and ChampionX Corporation (CHX). We like them both for the same reason, limited downside using stops and the potential for breakouts with a little push higher.
For RIG, we’d look to put stops in if the stock closes under $3. On the upside, if the stock can break through $4, it could eventually find its way to its 200-week moving average, which is at $7.08 but moderately descending.
For CHX, consider using stops if the stock closes below $14.80. Muck like RIG, if ChampionX can get through some resistance at $19, the next stop could be considerably higher, possibly as much as $25.