The NASDAQ is walking the line of support between continuing its recent run higher or possibly heading for some profit taking. The good news is that the initial reward-to-risk ratio strongly favors bulls right now.
To the downside, the index should catch some love and support at its 50-day moving average of 11,733 with a little wiggle room down to 11,600. A close below 11,600 and it gets dicey from there. Although, the 500-day mark of 11,430 would likely act as secondary support and the last stop before real trouble could emerge.
The NASDAQ finished trading Monday at 12,084.36, almost breakeven after opening deep in the red. If a pullback is in store, the 50-day is 351 points below. Even if the NASDAQ slips a bit, we’d see it more of a buy the dip opportunity as it approached the 50-day with a short leash if below the 200-day benchmark.
Meanwhile, if bulls make their return this week and carry the tech-laden index to the plus side of 12,250, the NASDAQ could be positioned to add close to 1,000 points. That’s a little less than a 3 to 1 reward-to-risk ratio using the 50-day mark as a downside target.
It would not be surprising to see Wall Street hesitate before picking a side in the immediate future as it waits for first quarter earnings season to hit full RPMs in the next few weeks. Sales, profits, and guidance will dictate where the market goes in the next month or so.
In the meantime, index investors might consider Invesco QQQ Trust (QQQ) when/if the NASDAQ closes above 12,250 or closer to the 50-day average if the index dips.
Investors cycled out of tech last week and moved some money into energy, utilities, and healthcare. However, only 11 sector/industry exchange-traded funds (ETFs) traded in plus territory in the last week. It’s also worth noting SPDR S&P 500 ETF Trust (SPY) outperformed Invesco QQQ Trust (QQQ), which can be a sign the markets are in for a breather.
Health Care Select Sector SPDR Fund (XLV) took the number 1 spot on our leaderboard, followed by Utilities Select Sector SPDR Fund (XLU), Energy Select Sector SPDR Fund (XLE), and SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Unfortunately, in our opinion, all of the top-performing ETFs look a touch toppy and more likely to shed a few points in the near-term. XOP is our favorite of the quartet above as it could cycle out of a downtrend that started in November. It’s our view that it would be bullish if XOP closed above its 200-day average of $134.14.
With the NASDAQ dangling between some profit taking or moving higher, we’ll wait for the breakout of the dip before singling up an idea here. And when we do put an idea here, it’s more likely to be technology facing than any of last week’s top performers, but we’ll ultimately let conditions have the final say.
The NASDAQ tickled the trendline connecting recent bottoms.