Sometimes it is straightforward. That is where the market is after Monday’s trading session.
As you know, we have emphasized the importance of trend confirmation. Writing, over and over, about higher lows followed by higher highs as the hallmark trait of an uptrend i.e. the visual of walking up stairs. (The opposite is true for a downtrend.)
Last week, as we projected, the indexes might take some off the top and test some key holding points, which would set the stage for upside provided the safety nets held. Well, the safety nets held and Wall Street bid stocks higher to start the week.
Last week’s bottom/reversal point was indeed higher than the previous low water mark and Monday’s gains put the S&P 500 and NASDAQ slightly higher than the previous rally’s peak. It is textbook stuff. The S&P, DOW, and NASDAQ should have pressure to move higher as all three levels of our momentum model are pointing north.
So, where could prices be headed? For the DOW and S&P, their respective eventual destinations are somewhat clear, their 200-day moving averages.
26,586 for the DOW
3,007 for the S&P
The benchmark trendlines for both are slightly declining; so, the target is likely to be lower by the time prices catch up to the 200-day marks.
Meanwhile, the NASDAQ is already above its 200-day average and could be headed to the next level of resistance in the neighborhood of 9,000. The DOW has some overhead technical debris on prior to its 200-day at 25,000 and the 200-day is the next line in the chart for the S&P 500.
Investors who like index investing might consider Invesco QQQ Trust (QQQ) as a way to trade a possible continuation of the rally. The fund is designed to track the performance of the NASDAQ 100. The NASDAQ is the strongest of the indexes now and should continue to lead the way if stocks continue climbing.
Surprisingly, considering the bloodbath of negative prices, oil and gas exchange traded funds (ETFs) were the top three performers in the last week. SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and SPDR S&P Oil & Gas Equipment & Services ETF (XES) were the clear winners of the funds we monitor for the week, gaining 9.28% and 8.48% respectively.
Despite energy’s strong performance, technology is where investors might look to ride the current uptrend. Technology Select Sector SPDR Fund (XLK) is only down 2.89% on the year and looks like it could be heading above water soon, according to our view of its chart.
Like the indexes, XLK has been walking up the stairs with higher lows and higher highs. The ETF has run into some headwinds at $90. If it can breakthrough nine-oh, then it could find its way to $95. With short-term momentum measuring sticks pointing up, the next run higher for prices should push XLK through its $90 barrier.
Finally, we would talk about earnings as roughly 1000 companies will release their quarterly report cards during the week of April 27, 2020. However, forward guidance is as, if not more, important than current results. Of course, most companies are going to be overly cautious in their projections or withdraw forward guidance altogether due to the uncertainty of the coronavirus.
As states re-open their economies, it should provide clarity. We should all be pulling for the states that are loosening restrictions to succeed in balancing the risk of COVID-19 and their economies. The better things go, the faster the entire country can get back to work.
May all your trades be profitable, or as ready put it, may all your longs go up and all your shorts go down. We like that one and will probably steal it going forward.