We won’t get fooled again… The Who
We were head faked last week by a false pivot. It’s impossible to make the correct call 100% of the time. That’s why it’s important for investors to analyze both sides… the bullish and bearish case.
Last week, we considered the possibility that the potential pivot higher might be false.
“If the potential pivot is a fake out, then we know where support lies, Friday’s intraday low of 15,456.09. As long as the tech laden index stays above Friday’s low water mark, odds are the NASDAQ goes higher. It wouldn’t be good for stocks if the NASDAQ closed below 15,400.”
Unfortunately, the NASDAQ slid below support at 15,400 and bottomed, a least so far, at 14,931 on Friday and early in Monday’s trading. It’s pretty clear where the downside marker is for the bearish case. If the NASDAQ closes below 14,931, look for another bout of selling, perhaps aggressive selling. If this turns out to be what happens, then the NASDAQ could make an upside down “V” pattern, which could take the index to October’s low at roughly 14,200.
Here is the bullish case, the NASDAQ breaks its current, steep downtrend line and closes above last Friday’s high of 15,470. We’ll use 15,500 as our upside marker. If the index can top and close above 15,500, it would likely break the downtrend, escape from its Friday-Monday trading range, and trigger some technical buy signals for computer-trading models.
Until one or the other (topping 15,500 or crashing 14,900), the NASDAQ hangs in limbo. For the time being, downside potential appears to be greater than upside reward. That doesn’t mean stocks can’t go higher. It’s just that the NASDAQ has a little more than 200 points to resistance on the upside, whereas there isn’t much support to hold the index from slipping 800 points from where it closed to start the week. That’s not the sort of reward to risk ratio we are fond of accepting.
Stocks got slammed and so did sectors last week. All but SPDR S&P Homebuilders ETF (XHB) were in the red as XHB squeaked out a small gain of 0.27% in the last week. Our choice in this spot last week, Utilities Select Sector SPDR Fund (XLU) was number two on our leaderboard and probably the only ETF we might consider under current market conditions. Since we covered XLU last week, we’ll pass on adding any other sector until the NASDAQ is no longer dangling in the middle of technical nowhere.
With near-term downside potential outweighing upside by nearly 4 to 1, there is no way we’ll add any new names to consider this week.