The stock market put on its own fireworks show before July 4th. The tech-dominated index zooming was expected after busting through resistance at 14,200. The thrust higher sent the NASDAQ into an overbought condition.
Much like dogs that chase bigger, meaner dogs, overbought conditions don’t last long before running the other way. The good news is that profit-taking following a breakout is usually short-lived. Investors might view any upcoming selling as a chance to buy the dip.
It’s normal for Wall Street to book profits after a strong run, looking to entice selling in order to pick up some cheaper stock before the next move higher. And that’s what we expect to see, a drop followed by another updraft that should mirror the first leg higher.
As things exist now, we put the likelihood of a 10% correction at about 10%. All of our market measuring sticks are bullish. Momentum looks good, the market internals are bullish, and the NASDAQ is leading the way. It’s been our experience that prices tend to go higher when the three are in agreement.
Index investors might consider adding more to Invesco QQQ Trust (QQQ) if/when Wall Street reacts to the NASDAQ’s overbought status.
SECTOR WATCH
A rising tide kind of week with a little bit of everything at the top of our performance chart. Energy was the biggest winner with a trio of Oil & Gas exchange-traded funds (ETFs) in the top 10. Meatal and mining, brokers, technology, health care, and consumer discretionary joined Energy as the strongest performers last week.
Of the best performers, SPDR S&P Metals and Mining ETF (XME) looks the best to us. XME appears ready to pivot higher following an aggressive, mid-June selloff. A couple of potential, technical buy signals could trigger if XME continues to advance in the next few days. If so, SPDR S&P Metals and Mining ETF would likely challenge its 52-week high of $47.85. On the downside, a close below $40.50 is about where we could consider putting our stops.
STOCK WATCH
MP Materials Corp. (MP) is the number 1 holding in SPDR S&P Metals and Mining ETF (XME) at 5.71% of the ETF’s holdings. MP Materials is the largest producer of rare earth materials in the Western Hemisphere, through its state-of-the-art, zero-discharge operations in Mountain Pass, California.
MP currently delivers approximately 15% of global rare earth supply with a long-term focus on Neodymium-Praseodymium (NdPr), a crucial input to the powering of electric vehicles, wind turbines, drones, robots, and many other advanced technologies.
MP Materials recently traded as high as $51.77 in early March. The stock swooned and dipped to the mid-$20s in mid-May and is on the rebound as infrastructure talks heat up.
MP Materials Corp. (MP) could be appropriate for investors willing to accept greater than average volatility and want exposure to the rare earth materials/mining industry.
Rich Meyers
Investing Trends
